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The High Cost of Borrowing Affects Businesses and Consumers

Yesterday, I came across this article that immediately caught my attention.  The title of the article was “Jaspreet Singh: Why ‘Fake Rich’ Americans Are Going Bankrupt.  Now I have neither heard of Jaspreet Singh, nor do I believe that I have ever represented a “fake rich” debtor.  But I do believe there is some truth to what was discussed in this article.

During the pandemic, many consumers purchased luxury items due to the low interest rates.  Such items as Rolex watches, Mercedes Benz G Wagons, and recreational vehicles were purchased under the belief that these would be good investments.  However, in March of 2022, these types of assets began crashing in value.  It is now difficult for these “good investments” to be sold, let alone for a profit.  And this wasn’t just a consumer problem.  We have even seen this phenomenon within the banking industry as well.  Banks invested heavily in low-yielding Treasury bonds.  Now with the Federal Reserve’s aggressive interest rates increases, these investments are yielding less returns.  The banks are sitting on a potential $650 billion mess.  I’ll be watching to see how this all sorts itself out.

In the meantime, how does this affect consumers and their purchasing behavior?  The high borrowing costs do not just impact one’s ability to purchase a home or car.  Decreases in other areas are necessary to offset the higher cost of owning a home or new vehicle.  With price increases at the grocery store, increased cost of heating your home, and property tax increases, to name a few, at what point do consumers reach their breaking point?  Decreases in consumer spending affect businesses and their bottom line.  How do businesses respond?  By raising prices even more.

The optimist in each of us believes these conditions will turn around shortly, but the cynic knows differently.  Sometimes, the hardest part is acknowledging that you cannot continue under this current environment.  We all reach our breaking point eventually.  If you find yourself living beyond your means.  If you cannot keep pace with the current economic environment.  If it is getting harder and harder to meet your monthly expenses, then it may be time to consider bankruptcy.  At a minimum, speak with a bankruptcy attorney to discuss your available options.  I am always willing to discuss your options. 

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