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With Frankness, Vigor, Understanding and Support

On July 13, the Labor Department announced that U.S. inflation hit a new four-decade high of 9.1%, adding that the “consumer-price index’s advance for the 12 months ended in June was the fastest pace since November 1981.”1 Earlier in July, the Federal Reserve “signaled they are likely to raise interest rates by (a) 0.75 percentage point...as part of an aggressive effort to combat high inflation.”2

At a conference in Victor, Idaho, on July 14, Fed governor, Christopher Waller, commented “We knew this inflation report was going to be ugly, and it was. It was just uglier than we thought.” However, “we don’t want to make policy on one data point, and that’s kind of a critical thing.”3 Some economists fear the Fed may raise the rate a full percentage point.

“The Fed hasn’t raised rates by a full percentage point since it began using the federal-funds rate as its primary policy-setting tool in the early 1990s. According to Kansas City President Esther George, “ ‘A rapid pace of rate increase brings about the risk of tightening policy more quickly than the economy and markets can adjust.’ ”4

Factors triggering the predicted interest rate hike, scheduled to be announced at the Fed’s July 26-27 meeting, are varied. “A big jump in gasoline prices—up 11.2% from the previous month and nearly 60% from a year earlier—drove much of the increase, while shelter and food prices were also major contributors...’Inflation makes everything difficult,’ said Lara Rhame, chief U.S. economist for FS Investments. ‘It erodes your savings, your wages, your profits. It’s punishing everybody.’ “5

In spite of the dire news, one small bright spot appeared. U.S. retail sales rose 1% in June. However, behind that silver lining lay another cloud, shrinkflation, “the process of items shrinking in size or quantity, or even sometimes reformulating or reducing quality, while their prices remain the same or increase.”6“Shoppers spent more in June but got less as they weathered the highest inflation in four decades.”7

“Unknown is how long consumer spending can continue growing in the face of inflation. Even though job openings abound and unemployment is historically low, many Americans find their cost of living is rising faster than the income they are bringing home.”8 The Wall Street Journal reports that “some households (are) running scared.”9

This is especially true for households in Louisiana. According to the small business website Merchant Maverick, Louisiana is “number one on the list” of states hit hardest by the current inflation. “Burdened by the highest sales tax rate in the nation (tied with Tennessee) and one of the lowest median household incomes ($51,707, the lowest in the nation after Mississippi), the Bayou State has suffered dearly under the current inflationary economic circumstances.”10

“ ‘To make matters even worse for Louisiana, the US South has seen some of the steepest price hikes nationwide,’ according to the report. ‘Transportation costs in the region rose 20.6% in the 12 months ending April 2022 compared to the previous year. Housing costs rose 7% — more than any other region in the US (with the exception of Maryland and Delaware, where housing also rose 7%).’ ”11

The news about our personal and national financial future seems grim. In keeping with our series format, I will again look at how our country, and increasingly our government, dealt with financial situations even more formidable than ours.

Our last article focused on the cycles of economic “boom and bust” in our country, which began in the early 1800s. Initiated by the “Era of Good Feelings” which was personified by General Andrew Jackson, later President, and his victory at the Battle of New Orleans in 1815, our country’s rapid expansion fueled speculation and outpaced economic stability.

The desire for a better life exposed fundamental differences between East and West and North and South, so deeply fragmenting our country that it led to the Civil War. The aftermath of the Reconstruction and the subsequent Panics of the late 1800s revealed the striking need for debt relief for businesses and individuals alike.

The first long-lasting bankruptcy act was created in 1898 by Congress, primarily to rescue the railroad industry, which was our nation’s first large corporate entity. “The chief advocates for it were merchants and manufacturers who provided trade credit to retailers throughout the country. The merchants and manufacturers wanted a bankruptcy law to deal with the everyday problems of growing interstate commerce.”12

During the Great Depression in the 1930s, the 1898 Act was amended. Under President Franklin Roosevelt, “New Deal reforms to corporate bankruptcy sidelined elite lawyers and strengthened the lawyers who represented small business and personal bankrupts. This latter group joined with pro-debtor interests in resisting the demands of consumer creditors to force personal bankrupts into repayment.” 13

“Many of its most important provisions had been drafted by William Douglas, who was appointed to the United States Supreme Court by President Roosevelt shortly thereafter, and went on to serve longer than any other justice in history. (William Brennan described Douglas as one of the two geniuses he had known in his life.) Douglas had worked on the project with a variety of other prominent New Deal reformers. In its own time, Douglas’s handiwork had itself been seen as a milestone in progressive, up-to-date legislation for resolving the age-old problem of financial distress...Congress amended and expanded its 1898 Bankruptcy Act many times but did not replace it until 1978.”14

Over the last forty-four years, American bankruptcy law has evolved into an acceptable, legitimate option for individuals and businesses facing overwhelming debt. Although the stigma has dramatically diminished, filing bankruptcy should always be a last resort. We are fortunate to live in a country that allows fresh starts and new beginnings to those who find themselves in financial distress.

As I complete this blog series on the development of debt relief in our country, many of us are feeling understandably anxious anticipating the Fed’s rate hike next week. Rather than worry, be proactive. Recall how individuals, businesses, and corporations have persevered through similar tough times with courage and hope.

In his first inaugural address in 1933, President Franklin Roosevelt exhorted people in all walks of life to take heart during the Great Depression’s darkest time. “This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory. I am convinced that you will again give that support to leadership in these critical days.”15

I am ending this post with practical advice on how you can get your personal, family, and business house in order. These suggestions, taken from the same excellent online article by Equifax, focus on career choices, emergency funds, and staying on top of your financial situation.

NOTE: The following article has been updated by Equifax - new title and text. Because we have already begun our series, we will take up in the new article where we left off in the old. The information is basically the same, only more directly tied to our current economic situation.

Prepare for a Recession (Accessed July 19, 2022) in Equifax. https://bit.ly/3yEeQE9

CONSIDER YOUR CAREER OPPORTUNITIES, BOTH NOW AND IN THE FUTURE

Recessions often result in high levels of unemployment. So, it’s important to consider how tough economic times could affect your career and have a backup plan should you face a layoff.

Start by refreshing connections within your professional network. Be sure to consider not only your coworkers but also any connections you have outside of your current employer. Having established relationships at a variety of organizations can give you a huge leg up in the job market. You might consider reaching out to your network via social media or offering to meet up in person for coffee.

It may also help to update your resume and other job-hunting tools ahead of time. As you review your past work experience, look for any gaps. Are there places where you could pursue continuing education or additional training? Expanding your skill set is one of the best ways to invest in yourself as an employee. This is true even if you’re able to keep your position during a recession.

For some workers worried about a layoff, it may be beneficial to pick up a side gig such as freelancing or working for a rideshare application. Having an extra stream of income can not only help in the event of a layoff but can make it easier to build your emergency savings while you’re still employed.

TRY TO BOLSTER YOUR EMERGENCY FUND AHEAD OF TIME.

Even if job cuts or layoffs are looming, put as much cash into your emergency fund as possible. You’ll need every bit of it when the income stops flowing. Give up all the extras, including takeout and delivery.

While tapping into your emergency fund is never a decision you should make lightly, losing a job or being forced to live on a reduced salary certainly qualifies as a good reason to use some of the cash you’ve put away. However, it’s important to rebuild your emergency fund as soon as your financial situation is more stable. Otherwise, when the next emergency hits, you might have to make tough decisions, like withdrawing money from your retirement account or applying for a home equity line of credit.

MAKE AN EFFORT TO STAY ON TOP OF YOUR FINANCIAL SITUATION

A recession may be an uncertain time, but the best thing you can do is take proactive steps now to prepare yourself. To help you stay on top of your finances in these stressful times, you can trust Equifax for reliable information on need-to-know topics. Now more than ever, financial education is important, so you can feel good about where you are with your money, regardless of any challenges ahead.16

Meanwhile, I wish you and your family continued success on safeguarding your family and business finances.

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If you would like more information about how I can help you protect your family or business assets, please call (225) 324-7459 or email larry@lraattorney.com

America’s Boom and Bust in the 1800s

In preparing to write the second installment for my series on how Americans have historically dealt with financial crises, two respected news sources, the Wall Street Journal and Reuters News Service had seemingly contradictory headlines. The morning of July 7, Reuters’ Lucia Mutikani reported U.S. labor market starts to cool as weekly jobless claims rise, layoffs surge (10:58 AM CDT).1 In the early afternoon of July 8, Mutikani reported U.S. labor market powers ahead with strong job gains despite recession fears (July 8, 2022).2

Later that same day, the Wall Street Journal’s Sarah Chaney Cambon reported that the U.S. Added 372,000 Jobs in June, subtitling her article, Despite strength in labor market, broader economy has been weakening in response to high inflation and rising interest rates.3 While both the job and the stock markets are important predictors for the financial future of our country, tracking trends in consumer spending may have more practical, immediate impact for the average American family and business.

In WSJ’s pre-July 4 holiday edition, Cambon and Rina Torchinsky detailed how consumers are coping with current economic conditions in their article, Americans Have Had It With Inflation: Consumers are cutting back on spending as they contend with historically high inflation.4 “Consumers’ short-term outlook on the U.S. economy reached the lowest point in nearly a decade, the Conference Board’s latest consumer-confidence survey showed. A separate survey of consumer sentiment fell to its lowest point on record... Cutbacks in consumer spending threaten to weigh on U.S. economic growth, which is flashing signs of slowdown. Many forecasters are increasingly fearful that the economy could fall into a recession under the weight of rising inflation and the Federal Reserve’s attempts to curb it through aggressive interest-rate hikes.”5

Specialty foods at grocery stores, dinner and drinks in trendy restaurants, new clothing, and luxury cars which burn lots of gas are being passed over in favor of more economical alternatives. Or, if an expense is not necessary, a purchase is not made at all.

In my first article published July 4, How Our Founding Fathers Avoided National Bankruptcy, I wrote about the courage President George Washington and Treasury Secretary Alexander Hamilton displayed and the strong measures they took to save our country from economic disaster. I also included down-to-earth advice on how present-day consumers can prepare their family and business finances for these uncertain times. My second article focuses on the crushing struggles many Americans faced during multiple “boom and bust” economic cycles which plagued our nation’s rapid westward expansion.

The “boom” began with President Thomas Jefferson’s purchase of the Louisiana Territory from France in 1803. The Purchase nearly doubled the size of our country, providing growth opportunities for humble settlers and adventuresome entrepreneurs alike. On January 8, 1815, the Americans’ stunning defeat of the vastly superior British army at the Battle of New Orleans ushered in the “Era of Good Feelings.”

The American victory astounded people around the world and firmly established our national feeling and character. It also made General Andrew Jackson into a national hero, eventually winning him our country’s Presidency in 1829. The United States was “effectively...unified for the next 45 years until the American Civil War.”6

Louisianans may be interested to know that the “Eighth of January was a federal holiday from 1828 to 1861 and it was equally as important and celebrated as the Fourth of July. The anniversary of the battle was celebrated as an American holiday for many years called ‘The Eighth’.”7

Nevertheless, there was a downside to Jackson’s popularity that had mixed results. “The Democratic-Republican Party used the victory to ridicule the Federalist Party as cowards, defeatists, and secessionists. In fact, the Federalist Party ceased to exist after the Battle of New Orleans...From 1815 to 1825 there was single-party rule in Washington and an overwhelming feeling of patriotism due to the extinction of the Federalist Party.”8

According to American historian, Andrew Browning, the bust began at the same time as the boom, “in 1815 as a regional depression in eastern commercial cities and mill towns, spreading down the Ohio River in 1816 and 1817; it evolved into a banking crisis in 1818 and became a full-blown national depression with the collapse of cotton prices in 1819 and a tide of business failures and bankruptcies that left no region unscathed. The sudden end of the western land boom left millions of dollars in unpaid debts, and hard times lingered in the South and West well into the mid-1820s.”9

Browning’s fascinating book, The Panic of 1819, closely examines America’s “first great depression,” adding it was “of all the critical events in American history perhaps the least known and least appreciated...It is no exaggeration to say that the Panic of 1819 changed the country profoundly, in ways that go well beyond the world of finance.”10

Few legal remedies were available at this time not only for creditors but also and especially for debtors. “The Supreme Court struck down New York’s bankruptcy statute as unconstitutional, but Congress refused to pass a national bankruptcy law, which the Constitution explicitly empowered it to do.”11

Browning paints a grim picture of the unfortunate circumstances experienced by many once hopeful people with Dickensian clarity. “Laid-off agricultural workers in the countryside tried to camp in the woods and live off the land; the middle class in the cities lost their income and wound up in debtors’ prisons. Those least responsible for their own distress were the most frequently held accountable for it: the unemployed poor.”12

The Panic of 1819 “introduced the American people to the pattern of boom and bust that has since become known as the business cycle; it was first of the series of financial crashes and economic depressions (called “panics” in the nineteenth century) that have since recurred at regular intervals.”13 Subsequent “panics” occurred in 1837, 1857, 1873, and 1893.

While Bankruptcy Acts were enacted in 1841 and 1867, the Act of 1898 was “a watershed in American bankruptcy law’,” including “more generous discharge provisions for the debtor than under prior bankruptcy law, but permitted a debtor to claim exemptions only under State law, and provided for both voluntary and involuntary bankruptcy cases.”14 Thus the 1898 Act was the turning point in providing debt relief to both creditors and debtors.

No debtor wants to file for bankruptcy, even as a last resort. However, as an attorney I am grateful we live in a country, whose legal system allows second chances and clean starts for those in need. And I am proud to provide hope and encouragement to anyone struggling with financial problems. As I did in my first article, I am ending this post with suggestions taken from the same excellent online article by Equifax. This section focuses on prioritizing debt repayment.

Prepare for the ... Recession (Accessed July 8, 2022) in Equifax. https://bit.ly/3yEeQE9

Excerpt, Way #2: Prioritize Debt Repayment

You might be worried about paying off outstanding debts in the coming months, like credit card bills, utilities or student loans. If you experience a loss of income, you might have to forego paying one or more of these bills, so it’s important to understand which bills you need to pay.

After all, if you lose income, you may not be able to pay every bill on time or in full every month. And, that will have a direct impact on your credit scores. While normally we suggest doing whatever you can to keep your credit scores intact, that may not always be possible. Therefore, you should prioritize how you pay your bills, so your available cash covers as many debts as possible.

Make sure you pay your rent or mortgage on time and in full. You don’t want to face foreclosure or eviction.

• Make your car payment, especially if you need a car to get to work.

If you’re facing an income reduction, contact your student debt lender and ask for a hardship application, which may buy you a few months where you don’t have to make a payment.

Make at least your minimum payment on your credit card. If that’s not possible, contact your credit card company and try to work out a payment plan. (Just know that the creditor will likely freeze your accounts, which will prohibit you from making additional purchases with the card.)

Continue to keep up with your medical debts if you can, however, do so after other debts are met first. If your health insurance is offered through your employer, you will continue to receive health insurance coverage even if your medical bills mount. If you buy your own health insurance, whether you’re self employed or for any other reason, be sure you pay your premium on time so your policy isn’t canceled.

Remember, if you’re falling behind, reach out to your creditors right away and ask for hardship concessions. This might include making interest-only payments on your debt or putting payments into forbearance.

You can also check out your local bank or credit union for a personal loan. There are online lenders as well, and your own employer may offer a short-term loan program in times of trouble.

If you’re making your payments on time, you can also ask your credit card company or any other lender about lowering your interest rates. A significant number of major utility providers offer programs that might allow you to pay your bills at a later date or provide other hardship assistance. You’ll never know what agreement you and your creditor can reach if you don’t ask.15

Next Monday, July 18, I will conclude my personal finance preparation series with a post on American economics beginning with the Great Depression of 1930 up through our present time. The practical advice segment will include Experian’s tips on community and government aid programs (with Louisiana-based links), building an emergency fund, and suggested resources to keep you abreast of financial solutions.

I wish you and your family continued success on safeguarding your family and business finances.

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If you would like more information about how I can help you protect your family or business assets, please download my business card, call (225) 324-7459 or email larry@lraattorney.com.

As we prepare to celebrate the 246th anniversary of America’s Declaration of Independence, our country is facing grim economic news. Joanne Hsu, Surveys of Consumers Director at the University of Michigan, reports that consumer sentiment fell in June “to its lowest point on record,”^[1]  since the university began the surveys in 1952. Although economists are not ready to declare that we are in a recession, multiple factors explain the precipitous drop in the average American’s confidence.

The U.S. Bureau of Labor Statistics shows the consumer price index “increased 8.6 percent for the 12 months ending May, the largest 12-month increase since the period ending December 1981.”^[2] The largest increases are in energy (34.5 percent) and food (10.1 percent). For those with fixed or low incomes, managing ongoing price hikes is and will continue to be especially difficult.

As an attorney with more than forty years of legal experience, I specialize in helping clients prepare for the worst. As Americans, we are fortunate to have a legal system that allows us to rise from misfortune to live our lives fully again. First and foremost, I ascribe to the sage advice from one of our Founding Fathers, Benjamin Franklin. “An ounce of prevention is worth a pound of cure.”

Franklin also believed that “a penny saved is a penny earned.” Learning and practicing the basics of sound money management is a crucial first step if you wish to prepare your family or your business for an uncertain future. To be very clear, in the event of a catastrophe, there is no 100% safe guarantee. If the worst does happen, you and your family will be better off with some preparation than if you had not done any at all. And, hopefully, you will minimize any damage which may take place.

Historically we Americans have proved our resilience, determination, and ability to make the sacrifices necessary to overcome adversity. Our capacity for teamwork with diverse peoples from around the world has helped not only our country survive but also other countries as well.

Over the next few weeks, I will post a series of articles examining how Americans have survived turndowns to flourish in better days. I will also include advice on how to get your financial house in good shape.

In honor of July 4th, my first post focuses on three of our country’s greatest founders. Benjamin Franklin, our first Postmaster General, was a multi-talented, highly successful writer and publisher whose wit and wisdom remain timely today. George Washington, our first President, and Alexander Hamilton, our first Secretary of the Treasury, helped lay the foundation for our federal government and legal system.

Most of us know how Washington and Hamilton fought and won our independence from Great Britain. Few of us know how they saved our young country from ruin.

In his online article for George Washington’s Mt. Vernon website, Ten Facts About the American Economy in the 18th Century, historian Scott C. Miller writes, “The Depression of the 1780s was as bad as the Great Depression. Between 1774 and 1789, the American economy (GDP per capita) shrank by close to 30 percent. Devastation of real property, a contraction of the labor force due to war deaths and injuries, the cessation of British credit, and exclusion from markets in Britain and West Indies resulted in widespread economic collapse.”^[3]

Although the end of the Revolution in 1883 with the Treaty of Paris brought about a short boom, the newly freed colonies struggled to survive. Miller recounts that “… During the late summer of 1791, the first financial panic in American history erupted in Philadelphia and New York. Fueled by widespread speculation, stock of the new Bank of the United States (BUS) rose from its $25 opening price on July 4 to $312 in Philadelphia on August 11. That same day, the bubble burst in New York and panic quickly spread to Philadelphia, resulting BUS shares losing half their value in less than 48 hours.”^[4]

Treasury Secretary Alexander Hamilton, who was known to be “an astute and intellectually brilliant administrator, politician and financier,” was also “often impetuous.”^[5] Nevertheless, his fast-acting temperament helped him to devise America’s first bailout. Over the weekend of August 13-15, “(t)hrough proxies in New York and Philadelphia, the Hamilton Treasury injected a total of $560,000 into financial markets, the 2011 equivalent of between $12.6 and $80 billion. Hamilton had to execute a similar plan just over six months later when financial markets collapsed again in the spring and early summer of 1792.’ “^[6]

Despite continual challenges and difficulties, Washington and Hamilton did not quit. In the website’s accompanying video, The American Economy After the Revolutionary War, Founding Director of the Washington Library, Dr. Douglas Bradburn, explains how under President George Washington’s dynamic leadership, the regulations, policies, currencies, debts, and taxes from the thirteen states were united into one economic system which was regulated by the Constitution. Bradburn also cites Alexander Hamilton’s national acquisition of state debt to help “mobilize capital for investment”^[7] in local communities. Our nation finally began to prosper “under the strength of the rule of law.”^[8]

As our country grew, so did our laws and regulations. To manage debt more effectively, Hamilton supported the first federal Bankruptcy Act which was enacted in 1800 pursuant to the Constitution’s Bankruptcy Clause. The controversial legislation, which was a response to the crises of 1791 and 1792, was modeled on British law. It was creditor, not consumer, oriented. There was also room for abuse. As a result, the 1800 Bankruptcy Act was unpopular with the American people and was later repealed

Since that time, bankruptcy regulations have trended towards more and more consumer protection, allowing for much-needed debt relief. This help does not negate the need for consumers to take responsibility for their own destinies, however, July 4th is a good time to reflect upon the frugality encouraged by our Founding Fathers and Mothers and to put their good advice into practice.

Benjamin Franklin famously said, “Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety.” As 21st-century Americans, we are fortunate to be able to shape our own destiny and to pursue our ultimate happiness.

For the remainder of this post, I will focus on personal responsibilities consumers can take to organize their family and business finances for any event, good or bad. The following suggestions are taken from an excellent online article by Equifax, originally written for the COVID-19 recession. This section focuses on reassessing priorities and building a budget.

5 Ways to Prepare for the ... Recession

(Accessed June 30, 2022) in Equifax. https://bit.ly/3yEeQE9

Excerpt #1:

One of the hardest parts of a recession … is not knowing what comes next and when things will get better. That’s why it's so important to be clear about where you stand financially. Ask yourself these key questions as you take stock of your financial situation.

• How much cash do I have on hand?
• How much cash can I get my hands on quickly, if I need it?
• How much debt do I currently have (credit cards, student loans, etc.)?
• What are my basic monthly living expenses, including food, shelter, health insurance, transportation and childcare?
• Do you have any major life events (for example, weddings, a baby or retirement) coming up with significant expenses attached?

Now is the time to understand what you’re spending today and to anticipate your needs over the next six months. If you’re well-prepared for a recession, job loss or some other financial hurdle, you’ll have an emergency fund that covers three to six months of living expenses (and hopefully a healthy nest egg for retirement).

If you don’t have at least three to six months of basic expenses in cash, then set that as your financial goal. Start by developing a basic understanding of how you are spending your money and building a budget.

To start building a budget, figure out your total household income from all sources, including you, your spouse/partner and any side hustles that bring cash into the household. You should also include income from investments and any other sources, such as child support.

Next, list your monthly expenses, including your rent or mortgage payments, utilities, groceries, pharmaceutical and medical needs, childcare costs, home and auto maintenance, debt payments, and insurance premiums, as well as any other regular expenses, including those you only pay annually.

Add everything up to understand whether you’re spending more, less or roughly the same as your take-home pay each month.

Finally, prioritize your essential expenses and make sure you identify the minimum you can spend in a given month to get by — just in case you or your spouse/partner experiences a job loss.

Your budget may need to adapt in preparation for a recession, and that’s okay. Try to cut down on non-essential spending, like entertainment, cable and clothing.

While it’s unrealistic to think you can cut out all discretionary spending, it’s important to separate wants and needs. Look for areas where you may have overspent. Try to figure out why that happened. You might not have extra money right now to put toward your retirement or a down payment, which is all right for the short term.

Once you get in the habit of reviewing your finances and looking for problem areas, you’re off to a great start.^[9]

I sincerely hope my first post highlighting three of our country’s greatest leaders' words of advice and inspiring examples in times of distress, along with tips on budget preparation and organization, will encourage you and bring you peace of mind.

Next Monday, July 11, I will continue our personal finance preparation series with a post on American economics during the 1800s leading up to the Great Depression of 1930 and the importance of prioritizing debt repayment.

Meanwhile, I wish you and your family a happy and safe holiday.

If you would like more information about my new blog site, please call (225) 324-7459 or email larry@lraattorney.com