|
Written by Chuck Bowen
|
|
Tuesday, 14 October 2008 09:44 |
Oh my gosh, you'd have to have your head under a rock (or somewhere else) not to be at least somewhat aware of what's going on in the economy lately.
Subprime
mortgages. Failing financial institutions (including the largest bank
failing in history). Stock market historical short-term losses (and the
gains). The Bailout. What does it all truly mean?
What is isn't:
- The
end of the world. The current national deficit is about 2 percent of
our total economy. It was over two times higher during the Clinton
administration and nearly three times higher in the early part of the
Reagan years.
- Nearly as bad as the Big Depression.
- A $900 billion loss to taxpayers.
The Treasury will buy up devalued assets to raise their market price
and add capital to struggling banks and financial institutions. Later,
the government will sell the (hopefully appreciated) assets to private
investors.
- A
direct increase to the national budget deficit. The CBO (Congressional
Budget Office) will determine the net effect of buying and selling the
purchases assets; a loss would be added to the deficit and a gain would
decrease the deficit.
- Inflationary, at least at the current
moment.
Yes, the government is "printing money" by adding to bank
reserves so they might lend it; however,the Fed is also removing money
from the system to maintain the bank lending rate stable.
What it is:
- A lot of money. We won't know the ultimate cost until the housing market turns around.
- A painful solution to a big problem.
- A debt to the U.S. Treasury. It will sell Treasury securities worldwide to raise money. In a nutshell, we're borrowing a ton of money.
- An increase in FDIC insurance to accounts up to $250,000 through 12/31/09.
However, this is on the taxpayers, but rather on the FDIC insurance
fund. If the fund runs low, then the banks will be assessed to cover
it.
- A wild ride. In less than 10 days we experienced the biggest loss and gain in market history.
- A buying opportunity.
Now is the time to evaluate your investment holdings from a long term
perspective and begin purchasing good mutual funds with long track
records.
The worst things you could do:
- Become paralyzed with fear. Now is the time to get your financial house in order, not sit around wringing your hands.
- Borrow money.
- Sell your good performing investments and lock in your losses. Hold onto them and sell your dogs.
The best things you should do:
- Get out of debt.
- Look for business opportunities.
Unrest will drive a lot of businesses on "life support" out of the
market leaving a lot of opportunity for well-run businesses. There
were more small businesses formed coming out of 9/11 than ever before
in history. This could be your chance.
- Update your skillset.
Businesses that do well coming out of these challenging times will be
looking for new employees that know how to think and do, not simply
carry out tasks. Now is the time to invest in yourself!
Chill out. Learn to take advantage of difficult times to prune your vine. It will grow back stronger. |
Get "The Chuck Bowen Online Show & Podcast" automatically delivered to you by subscribing in iTunes!
