Two big economic trends appeared this week that might have flown under your radar, but they could have a real impact on your finances this summer. There's good news and bad news: your chances of being employed just went up, but the paycheck you'll start earning could be worth less.
Let's start with the good news: some of the 19 big banks that took your money in the TARP bailout last fall are talking about paying some of it back soon. Chase, Goldman Sachs, and a few others are nearly ready to hand over $45 billion. That's still only a fraction of the $700 billion we shelled out, but it's real money. And more than that it is the second clear sign that the economy may be on the mend. The banks would not pay TARP back if they weren't confident they won't need another infusion of cash down the line. They've got some of that swagger back, and that could cause a chain reaction that just might get some of the 15 percent of Americans who are unemployed or underemployed back to work this summer.
Confidence means increased lending to places like John Deere and Target, which makes those companies healthy enough to expand their businesses, which requires hiring new employees. We knew things were turning when the DOW started to recover; the next concrete sign will come when banks begin pay taxpayers back. Even though I still worry that the working class is not going to meaningfully benefit from this recovery in the way it both could and should, at least more people will get off the beach this summer.
The other piece of important economic news came overseas, but it's just as likely to affect your finances. This week China and Brazil, two of the world's largest economies -- and two of the few big ones that could actually grow this year -- announced yet another huge trade deal amongst themselves. (China surpassed the U.S. as Brazil's biggest trading partner a few months ago.) But the deal itself was not the big news. The takeaway is Beijing and São Paolo saying that they want to pay for future deals in their own currencies, as opposed to using the U.S. dollar.
"So what?" you ask. Here's the story: even though they may not have known it, Americans' money has stretched further at Wal-Mart, Target and a slew of other places over the years because the dollar was the world's reserve currency, meaning that other countries pay more for dollars than they should because it's the strongest and safest in the world. What happens if other countries follow China and Brazil's lead? The value of your money over time could be 15-20% less, and that's not just what's sitting in the bank -- you'll see it when you buy dinner or a flat screen, too. Put another way, imagine that your $40k salary is now worth about $32k. Yikes. It's not quite that simple, but it's also potentially not that far off. And some -- even President Obama -- worry that it could be even worse.
As we all know, big changes aren't always spectacular or immediately apparent. Sometimes you just look up in traffic and realize that it now takes twice as long to get home, or you step on the scale and notice that you weigh 20 pounds more than you did three summer ago. These two economic trends could gradually slip into our financial system without a ton of fanfare, but they could have a real impact on our lives and the the lives of our friends and families.
It's sobering, for sure. But remember: there is time for even more change to come.
Cross-posted at The Stimulist. If you like this, take a look at how Carlos thinks working class America can benefit more from the recovery and how you can get the most out of your company when it's hurting.