Double Dip Recession: Is this where we’re headed in 2010/11?

Are we at risk of a double dip recession? Certainly many investors, economists, and pundits think so.

You may have noted that the Australian Reserve Bank has raised interest rates, and other countries are following suit. Unfortunately for many borrowers in the weaker economies of the Western world, jobs are being cut, and salaries are stagnating as companies and governments fight their own battles with shrinking revenues.

What is a double dip recession?

In short, a double dip recession occurs when the gross domestic product (GDP) growth starts to shrink after a quarter or two of positive growth. This positive growth period itself occurs after a recession.

In other words, the sequence of events is: a recession that precedes a recovery; after a truncated period in the recovery, perhaps only one or two quarters, a recessionary period returns as growth in GDP shrinks again.

Consumers Bite Back

So what do borrowers do facing such double dip uncertainty? They rein in spending, cut expenses and start saving like mad. And we can all clearly see the effects of this, as retail expenditure falls off a cliff, bank balances rise and expensive services get cut, like premium services on cable, mobile phone, etc..

Unemployment in the US is hovering around 10% so job security is a primary concern for many working people. Those with jobs would rather save more money now than spend, spend, borrow and spend, so the employed are increasingly boosting their savings rate to multi-year highs. With unemployment likely to remain high for the foreseeable future, this bodes well for savings rates and workers’ bank accounts and it coincides with a period of lower interest rates.

Banks: Protecting their interests

The banks have acted in their own best guardians in many situations by raising rates on unsecured loan items such as credit cards, personal loans, etc. as they are facing an onslaught of credit defaults and increasingly interventionist laws from governments worldwide that seek to curtail their excessive profiteering.

The latest round of BASEL III talks has threatened to increase capital requirements further, thereby making banks less vulnerable but in short-medium term dampening lending prospects even further.

However, many consumers are experiencing surging credit card rates to as high as 30% pa for their debts, increased levels of minimum payments, and restricted credit lines, or even credit card terminations.

The consequence of this for the economy in the short term is only bad: higher default rates on loans, less leveraged spending on consumer items, less reinvestment by companies, and tightened budgets in both governments and corporations. And banks on the one hand are stashing the extra cash to bolster their banking reserves rather than lend, and on the other cite reduced demand for loan products and services. But governments keep calling for more lending, yet banks only lend to those who don’t need it. Ironic, but true. After all none of this really lessens the risks of a double dip recession by any means.

It’s The Economics That Matter

Why? The inflationary subsidies, tax breaks and bailouts have all served to add stimulus to the economy, preventing the situation getting far worse. Recently, for example, in Taiwan, the economic indicators started flashing green again, after extensive periods of both overheating (until 2007) and recession (2007-2009). So in many markets, there are initial signs of recovery as some exporting economies move out of recession and bond rates are indicating upward pressure, too. But…

Where now, consumers?

Many economists are predicting a double-dip recession in 2010. This may happen, and things may worsen again in the short term as the stimulus measures are withdrawn, run out of funds (new car credits) or expire their terms. Even if that doesn’t happen, I don’t think consumers are going to start spending any time soon. They are scared of the future, and the prospect of a double-dip may only force consumers to redouble their efforts at controlling their spending.

In short, going into the latter part of 2010, there is still a lack of confidence in the recovery; and recent upturns in the stock market are likely to be short-lived. I do not think we will retest bargain basement pricing as in early 2009, but for those with patience, guts, and cash, there will be good opportunities to purchase both stocks and real estate in the coming 12 months.

What’s an investor to do?

With the risk of a double dip recession, typical in a bear market scenario like this, investors are unlikely to be buying for the long haul. They would prefer to ‘trade the markets’ in either direction, buying or shorting stocks when there’s opportunity otherwise staying in cash.

How would you plan to trade these recessionary times? Let me know, via the contact form! Look forward to hearing from you.

3 Tips to Help you Deal with New Credit Cards

There are many reasons why your wallet may be feeling the pinch right now, and poor lending choices are one of the culprits. If your credit ratings have been affected by lost jobs, poor income levels or bad credit scores, you may need to spend quite a bit of time, money and personal energy restoring your credit record through credit repair efforts and renewed borrowing.

If you are considering high interest credit credit cards from sites such as BadCreditOffers (which provide links to different types of cards, different rates and conditions), I would caution you:

1. Know the Credit Card Interest Ratesbadcreditoffers-1[2]

Rates for most credit cards are typically between 10%~20%, but can go much higher depending on the card, the agreement, and the penalties.

Know this and understand this. Don’t be fooled by “Intro APRs”, “Low Rates”, Freebies, or Minimum Payments. Always know the full rate, work out how much you would have to pay at that rate, and calculate how much interest you would pay over 12 months on a typical amount for your own budget.

Oh, and beware those N/A statements. Know why they say “N/A”!

2. Read the Agreement before you sign!

Make sure you read the agreement, esp. if you are going to use the card a lot. Make sure that you understand what penalties may be applied, what rights you have under the agreement, and who you need to contact if you have problems.

If you don’t understand the agreement, don’t sign it until you are happy that you do. Find someone who can explain it to you.

3. Check those Statements carefully!

When you get your card, keep it safely along with a record of your usage of the card. Then make sure you check those statements carefully each month. Check off each item as it appears and query any that are incorrect. Then make the payment before the due date to avoid penalties.

I am thankful that I can read my statements (even though they are in a language I’m not competent at), I do have someone who can understand the agreement, and I religiously check each and every statement. It really helps to keep tabs on your credit cards and your usage patterns. But I’m assuming you already do that, don’t you?

Prepaid Cards: Bane or Boon? That depends…

For perhaps the largest selection of prepaid card plans in the industry, you can visit Kaiku ( Kaiku is well known for administrating many prepaid Visa card programs that are responsible for returning many individuals, families and businesses to financial health.


No matter how much financial trouble you are in, a prepaid Visa credit card from Kaiku will always help the situation. Although the card can be used just like a Visa credit card, the prepaid option means that you will never spend more money than you deposit on the card in the first place. This means that your purchases will still go towards the improvement of your credit score, but you will never face the consequences of a late payment.

Kaiku offers both vanity prepaid cards as well as Visa cards from major banking institutions. You can also use Kaiku in multiple instances with many prepaid cards for different purposes. Kaiku also allows you to add money online with one of the most convenient and up to date deposit systems on the Internet today.

If you do not have the best credit or you are just looking for a credit card option that will protect your financial health, then you should check out Kaiku. You would do well to note that prepaid cards do have a variety of fees and charges including a monthly fee and a credit card deposit fee.

If you manage your withdrawals and account checks to in-network services, you’ll probably be fine; but if you travel a lot internationally or have to use a fee ATM service, it may not be particularly affordable. However, many pre-paid cards seem to offer similar packages.

The good news is: no need to pay interest rates on your prepaid card, so stuffing one in your wallet may be quite useful at times. Just remember to keep cash in it and monthly rates are $1.95. Oh, and don’t get a paper statement! That’ll set you back $2.95.