Average Weekly Earnings - May 2009

The U.S. Bureau of Labor Statistics (BLS) reported today that the average weekly earnings of private Americans fell by 0.3% from April to May. What does this mean for ECONtrepreneurs who monitor changes in the broader economy and its effects on their personal economies? Let's explore this in light of other recent economic news.

To begin, Average Weekly Earnings is an Economic Indicator (see May 8th post). From this we speculate on take-home pay trends for average workers. Average Weekly Earnings are reported monthly along with the Employment Situation Summary, also published by the BLS.

The Consumer Price Index (CPI), also from the BLS, was released today as well. For simplicity, the CPI is synonymous with inflation. The CPI is a gauge to determine if Americans are paying more or less for the same goods/services as they were last month or last year. Consumer prices in May increased 0.3%.

So earnings are shrinking and prices are rising. If this trend continues, your consumer spending could be threatened! You may not be able to buy the same quantity (and quality) of goods and services you previously could, although your paycheck is the same amount. In layman's terms, situations where there is too much money chasing too few goods, causing the price level to increase are called inflationary. Conversely, situations where there are too many goods and not much money, causing downward pressure on prices are called deflationary.

Thankfully, we are not experiencing neither inflation nor deflationary effects yet. But the threat of both linger. The Federal Reserve, America's central bank headed by Ben Bernanke, is responsible for monitoring inflation levels. If prices continue to rise unchecked, inflation is well on its way to a reality near you.


Let's dig a little deeper into the CPI figure. Total CPI rose 0.3% from April, but core CPI rose only 0.1%. Core CPI does not include food and energy prices. Why? These products are considered volatile and susceptible to wild fluctuations. If the supply of oil or corn is restricted, the prices of these commodities changes immediately and drastically. Taking these components out leaves us with a more stable rate: the core inflation number. Keeping food and energy prices in the CPI number is called headline inflation, because it does just that: makes news headlines!

According to Federal Governor Kevin Warsh, the risks aren't as prevalent as many would have us to believe:

The recent data on inflation shows that the risks of deflation, which entered the minds of many central banks around the world over the last 18 months...seem to be significantly attenuated. [Inflation dynamics are] "closer to a zone of price stability....

Warsh is undoubtedly looking at the bigger picture. While headline inflation is up, core inflation not so much so. And, looking at CPI figures from the same time last year, inflation levels are lower in 2009. Core inflation is steady, but headline inflation is a little trickier. Energy prices - specifically gasoline prices - increased in May but not like we're used to seeing this time of year (Memorial Day usually kicks off the summer driving season; when people need or demand more gas, the price of gas will rise). Here at The Delasol Group we anticipate June gasoline prices to be higher, thus contributing to a higher headline CPI number next month. However, American productivity is lagging and more modest GDP numbers will likely keep core inflation in check as well.

U.S. Trade Gap - April 2009

Today the U.S. Department of Commerce reported that the national monthly deficit in international trade of goods and services increased to -$27.2 billion in the hole. That's a long way to climb out.



The International Trade Gap is also known as the Balance of Trade. It is one way to determine how healthy an economy is. The Balance of Trade is a summary of the monetary value of a country's exports and imports. Exports are goods and services a country sells. Imports are goods and services a country buys. When a country exports (buys) more than it imports (sells), the balance of trade is positive and is called a trade surplus. If a country imports (sells) more than it exports (buys), the balance of trade is negative and is called a trade deficit. The United States has been facing a trade deficit (buying more than we sell) since 1976. Interestingly, if you look at goods and services separately, the balance of trade for services has always been positive.

International trade is a necessary evil. It allows a business or country to expand; like most expansions, smaller, less competitive agents are usually hurt or allowed to fail for the benefit of the majority (In a future post, we will look at the effects of globalization on the Jamaican economy and the rise of Wal-Mart). Although the United States has many natural resources, for example, it cannot provide it's citizens with everything they want or need. For this reason the U.S. engages in international trade with other countries. The U.S. Trade Gap is the balance of trade between America and the rest of the world.

During the month of April, the deficit worsened by about a billion dollars from March. Deficits, per se, aren't necessarily a bad thing. It's really about when they occur and what effects other economic events have on them. In a recession, highly developed countries like the U.S. may want to export more, thus selling more goods to foreigners than they purchase from them. In theory, this would create jobs (to manufacture, distribute, market and transport the good) and demand for said good. This would help an economy fight the effects of a recession. In prosperous times, a country may be in a position to build capital or invest in machinery for future growth and will choose to import (buy) more goods and services.

Well, right now the United States is in the middle of recession and we're on the wrong side of the import/export fence. The widening deficit means that at a time when money is already tight from individuals all the way up to our national government, we are still outspending what little bit of revenue we're making. What are we spending our money on? Wait for it....Oil.



American oil imports are up and instead of gassing up our cars, in reality we are fueling the deficit! America has the most powerful economy in the world, measured by a Gross Domestic Product (GDP, another measure of economic health) figure of $48,000 per person, for roughly 300 million people. Wow! Additionally, U.S. firms have more flexibility and independence in their business decisions than their Western European and Japanese counterparts. But oil is the proverbial monkey on our back. Higher gasoline prices a year ago ate into our pockets and inevitably, into our trade budget. Imported oil accounts for about two-thirds of all U.S. consumption so it's a big part of national GDP (Remember, GDP is the economic determinant of how big and bad a country we are). According to the CIA World Factbook, America produces 9 millions barrels of oil and consumes 21 million barrels each day. We import 14 million barrels and and export 2 million. Something has got to give.

Oil is a natural source of energy, but not the only source. President Obama has issued a call for Americans to find other ways of getting the energy they demand - without going into debt or depending on someone else to negotiate the supply. On June 1st of this year, U.S. Department of Energy Steven Chu announced a $256 million investment from the President's American Recovery and Reinvestment Act. The initiative will support energy efficient improvement in industry. The funding is set to reduce energy consumption - especially in manufacturing and IT sectors - create jobs, and help grow the economy. We'll have to hold our government accountable for weening us off of our addiction and developing environmentally-friendly, long-term solutions.

Here's an interesting and ironic video clip of a Barack Obama painting done entirely in motor oil. The artist is David Macaluso.

A Healthier You

The U.S. health care system is overweight with ill-gotten profits and has arteries screaming for reform.


While America is great - even the greatest! - at many things, we've fumbled with our health care system for long enough. An astonishing 15 percent of all Americans do not have health insurance. That's the equivalent to every Hispanic American not having insurance. It is unacceptable for one of the world's most developed nations to disregard the health and lives of so many of its citizens.

In short, our health care system is a quagmire of regulations and directives not easily translated into English! American workers pay increasingly higher premiums, deductibles and co-payments, in a system that dictates which doctors you can and cannot visit. Health care spending is about 15 percent of Gross Domestic Product (GDP) in the United States. To see how we match up against other countries, examine the graph below:

As you look at the graph, you see that Life Expectancy increases as you move higher up the vertical axis. Health care spending in "international dollars" (a fancy method of equalizing country currencies in order to compare them...on an 'apples to apples' basis) is along the horizontal access as you move from left to right. In an ideal scenario, you want to be a country that is higher than the others (your citizens live longer because they are presumably healthier) and towards the left (your citizens get healthier at a lower cost than others). Looking at the graph, Cuba and Japan are two great candidates for having the world's best health care systems. In essence, Cubans and Japanese pay less for good health care that helps them to live longer. The United States has comparable life expectancies, but pays much more money to live longer. Sierra Leone is our polar opposite, as its citizens can't afford enough quality health care so the average life expectancies are lower.

There are many reasons why some countries can provide better health care for its people. Some places are ideally located, so access to clean water, an abundance of fruits and vegetables produced and favorable climate are naturally occurring resources that encourage healthier living in places like Costa Rica and South Africa. Poverty, however, is the primary discriminator between who is healthy and who is not, no matter where you live. This is the case especially in America where we have high economic inequalities by income, education, race, et cetera. Here, high quality health care is available only to those who can afford it.

Enter U.S. President Barack Obama. In recent stops across the nation, he has revealed that his version of health care reform will cover the approximately 45 million Americans that are uninsured and will cost about $1 trillion dollars over the next ten years. If it sounds like a lot of money, it is! To this, the President says:

Failing to reform our health care system in a way that genuinely reduces cost growth will cost us trillions of dollars more in lost economic growth and lower wages.

The bigger issue, of course, is how is he going to pay for it. In his June 13th weekly address he proposed major cuts to Medicare and Medicaid, he has also said that taxes will go up and [unnecessary] health care spending will fall.

There is a wealth of information - and opinion - on America's Health Care Reform plans. Educate yourself here first, then come back to our blog to continue the discussion!

All Aboard!

Not since the early 20th century have so many Americans had train on the brain.

In 1922, General Motors President Alfred P. Sloan took the initiative to get more Americans into passenger cars by enlisting the help of Standard Oil (now Exxon), Phillips Petroleum, glass and rubber manufacturers and politicians to build a convincing argument against mass transit. America's love affair with the automobile has blossomed ever since...although the love affair with GM recently soured....



Economics has a special love for transportation issues too. There is lots of opportunity for creating more efficient, more economical modes of transportation. And, during economic downturns, more people tend to choose public transportation over incurring private transportation costs such as gas and maintenance. For an example as to how well public transportation can work, look at Spain.

Case Study: Spain by Train

After the success of Japan's Shinkansen Trains and France's TGV, Spain opened its first Alta Velocidad Espanola (AVE, for "high-speed Spanish train") in 1992. It ran between Madrid and Seville. Since then, the network has grown to include more stations in the south and eastern regions. In terms of efficiency and economy, the route handles about 89 percent of railway and air traffic. The number of tourists to smaller town has increased, demand for business conventions is up and less competitive-areas now have the option to attract companies to their local economies. Here's an interesting video on the efficiency and overall satisfaction with the AVE.



Trains have numerous economic benefits as a preferred mode of regional transportation. The International Union of Railways (IUR) says a high-speed train (which, by definition travels 90 m.p.h. or faster) can carry eight times as many passengers as an airplane over a given distance, using the same amount of energy and emitting a quarter of the carbon dioxide for each passenger. The AVE reaches up to 300 m.p.h. during the morning rush hours between Barcelona and Madrid.

With clogged highways and overburdened airports here in the States, economic growth is suffering. President Barack Obama has set aside $13 billion for high-speed rail infrastructure in his landmark 2009 Stimulus Package. That's an initial $8 billion, then $1 billion annually for five years. The Transportation Department is to begin awarding monies by the end of summer. As of today, only one high-speed rail line is operative in America; it's the Washington D.C. - Boston line in the Northeast Corridor. The Federal Government has identified 10 corridors nationwide with great promise for high-speed development.

President Obama has this to say on high-speed rail systems in the U.S.:

"What we need, then, is a smart transportation system equal to the needs of the 21st century. A system that reduces travel times and increases mobility, a system that reduces congestion and boosts productivitym a system that reduces destructive emissions and creates jobs."

So now that we understand the benefits, what are the costs? The director of high-speed rail at the IUR says that high-velocity trains are not profitable. Despite hugh time and environmental savings system-wide, budget airlines still offer the cheapest prices between Barcelona and Madrid and the IUR director goes on to say that the systems in Japan and France are likely the only two to have broken even in terms of profit. There are major concerns in terms of safety, and reliabilty which can be very costly to maintain. CATO Institute economist Randal O'Toole found that aside from businesspeople and tourist, average Europeans still prefer driving to rail transit. In an article that appeared in USA Today on May 20th, he confirmed that taxes would rise for all Americans and that ticket fares would cover only some of the operating costs and none of the capital costs. O'Toole calculates that the cost of implementing a high-speed rail system in the U.S. would cost an eye-popping $500 billion, in stark contrast to the $13 billion the President has set aside through 2015. American highway infrastructure paid for itself in a matter of years from fuel taxation. What besides rail subsidies would sustain a nationwide system?

One idea is property taxes. Spanish real estate portal Kyero reported in June 2008 that property prices in towns and cities served by AVE stations outperform their provincial averages. As more stations are planned, it will be interesting to see how the introduction of high-speed rail impacts house price. This could in turn become a primary source of payment for train systems worldwide.

What are your thoughts on high-speed rail in the U.S.?

The Credit Education Series, Part 2 of 4

In part two of the Delasol Group's Credit Education Series, we will open dialogue about the all important credit report.

What does my credit score say about me?

Your credit score is a three digit number that helps to determine the amount of credit (in dollars) you can borrow and the interest (as a percentage) you will owe. In general, the higher your score is, the more money you can borrow and the less you will pay for the loan. The more credit you can responsibly manage and pay back on time, the more creditworthy you are on paper to prospective lenders.

As a side note, interest is the cost of borrowing. If you borrow $5000 from your bank, they expect you to pay back the $5000, plus interest. Interest is the dollar amount you pay for having the luxury to access cash that is not yours; it's the cost of borrowing! Before the 1980s, American banks used to charge everyone the same flat interest of about 20%. After credit scores became readily available to individuals in the late '80s, banks began offering credit with a variety of interest rates, thus tying the cost of borrowing (interest rate) to a person's degree of credit risk. Credit risk is the polar opposite of credit worth.

How is my credit score determined?

Here's the breakdown on your credit score*:

35% is determined by your payment history; that is, do you regularly pay your debts on time? Note that unpaid library fines, medical bills and parking tickets are included in your payment history.30% is based on the amounts you owe each creditor and how that compares with the total credit available to you. If you are maxing out your credit lines, your score will suffer.15% is based on the length of your credit history. The goal here is to have a few accounts (you only need 1 or 2 to establish healthy credit habits) and old accounts, which show that you are a good steward of credit over long periods of time.10% depends on how many accounts you have opened "recently", or how many "recent" inquiries exist on your report; Recent is relative, but know that your score can drop if it looks as if you're seeking several new sources of credit - a sign you may be in financial trouble, and therefore not very creditworthy.The last 10% is determined by the types of credit you have chosen to use. Installment debt is paid in a fixed amount each month, like a mortgage. Revolving debt doesn't have a fixed payment (like with credit cards) so the amount you owe depends on how large the outstanding debt balance is and your prevailing interest rate.
What is a FICO score?
Now when people say "credit score" they usually mean the FICO score. FICO stands for the Fair Issac Corporation, the good folks who invented credit risk scoring. Keep in mind that FICO isn't the only credit score out there (one estimate says that there are over 1,000!) but it is the primary score used by lenders. FICO takes into account the data collected by 2 of the 3 largest credit-reporting agencies, and gives credit scores for Equifax and Transunion*. The FICO score can range from 300 to 850.

Do I need to pay for a credit report?
No! You can get a FREE copy of your credit report from each of the three major credit agencies once a year. How? Visit AnnualCreditReport.com, the only authorized online site under Federal law. Review it carefully and address any errors in a letter sent to the appropriate agency, with any supporting documentation.

How do I get my credit score?
Now this tidbit you are charged for. As stated above, FICO is the most widely used score, and this can be obtained from myFICO.com. Here, you can also get a score from Equifax or Transunion. Remember, some scores are proprietary by the company you choose; as fotenoted below, Experian, while a major credit bureau, no longer partner with FICO to provide credit scores, and instead offers its own model.

What do I do after I get my credit report and score?
Whether or not you need to monitor your credit is debatable. If you are trying to establish healthy credit habits it is in your favor to check your credit yearly or even quarterly to get used to searching for errors and evaluating the outcome of your credit decisions. Or, if you plan on using credit for a major purchase in the next 6-12 months, it would benefit you to check your credit and address any errors beforehand. Not only will you be aware of how creditworthy you are, but you also take the steps to change your economic behavior to become more wealthy and wise about your financial future.

Part III of the Credit Education Series coming soon!!



* This breakdown obtained from the New York Times Online article "Credit Scores: What You Need to Know", 01.06.2009.
* Experian no longer has a partnership with FICO to provide credit scores as of 02.2009

Economic Indicators

A primary goal of this blog - and of the economic education services The Delasol Group provides - is to get people to relate how things in the larger economy affect their daily lives. Looking at national or regional economic data and news is an area of study called Macroeconomics. In contrast, Microeconomics focuses on a smaller ("micro") portion of society - individuals and businesses. While much of the information on this blog deals with your personal economy and other Microeconomic issues, it's important to keep up with Macro news too.



Case in point: the National Employment Situation.

Now this is the type of information that moves markets; literally. In fact, this data is so important that it's essentially locked up until the very minute it's released to the media and the public. National statistics that allow us to gauge how healthy the economy is and predicts future performance are called economic indicators. Here's a few of them here. The National Employment Situation is one too.

Today, the U.S. Department of Labor reported that the jobless rate rose from 8.5% in March to 8.9% in April and that roughly half a million people lost their job last month. Even with this dour information, it's optimistic that April's decrease was the smallest in the last six months. This could mean that the recession may be reaching a bottom - a turnaround point. If you visit the BLS website and search for the Employment Situation report, you can get even more details such as the unemployment rate by race, gender and industry. So how does this economic indicator affect you?

Let's imagine you were unhappy at your current job. You may be weighing your options: Should I go back to school for more education? Should I start my own business? Should I transfer to a new city? Awareness of what's going in the in Macroeconomy can help us make routine Microeconomic decisions. Knowing that businesses are still laying off workers may persuade you to keep your current position. However the fact that less folks were laid off in April compared to the previous six months may encourage you to explore your options and watch how the situation changes in the coming months.

We will continue to explore how changes in the Macroeconomy affect us as individuals. What other economic news have you heard about that you feel directly affects you?

Fear & Loathing in the U.S.

Gun sales are up in the United States of America.

And if sales of guns is up, you can logically expect that ammunition sales and background checks are up too. The Federal Bureau of Investigation's website confirms that more people are trying to buy guns this year than in 2008*.

What's driving this trend is primarily disgruntled voter speculation (see definition below) and...wait for it...CONFIDENCE; or more appropriately, a lack thereof.

The day after President Barack Obama was elected on November 4, 2008, many gun stores, like the one pictured above, earned record revenues as gun enthusiasts and amateurs alike filed in and stocked up on their Second Amendment Right. Aside from isolated theories that the Obama Administration will usher in a new era of anarchy and chaos, it seems as though the increase in demand for guns and the like are due to one of three factors:

1. Some are anticipating new gun-control laws;
   
2. Others are concerned about their public safety as the recession searches for a bottom;
3. But most are eying guns as a "safe" and practical investment when the volatility in the stock market leaves most of us too queasy to take advantage of low-cost stocks and commodities.
   

Wait, investing in guns??

First two definitions:

An investment is a choice by a person to place money into a security - such as a stock, commodity or bond - after careful research. The investor's research assures him or her that a little risk will probably generate a lot of (monetary) benefit in the future.

Speculation however, is the same scenario without careful research.

Guns are investments like any other. Say your great-great-grandfather owned a weapon at the turn of the 20th century and now you have it. Like comic books and currency, old guns are worth money. Since America became its own country, the right to bear arms has been integral to our national identity. About 50% of all American households own a gun and many more are gun advocates.

But are guns "good" investments? That depends on the current state of the market for guns. Last September, Soviet-era AK-47 rifles (one of the first assault rifles, it was designed by Mikhail Kalashnikov and debuted in 1947) sold for about $350. By the end of 2008 the price had more than doubled! This was clearly a good investment in September, as in just a few months you would have watched with glee as the value of your investment rose. If you decided to sell - or "flip" - the gun, you would have made a profit! Today, European-made AK-47s sell for just under $2000.

Whoa.

Scarcity - or the premonition of it - drives up demand for a product. For this reason, it's no surprise that many gun dealers support the hypothesis that President Obama is going to restrict gun rights, despite signs that reinstating the Federal assault-weapons ban (which lasted from 1994-2004) is unlikely. In reality, the ban has very limited support in Congress. But if people lack confidence in the executive and legislative branches of our government concerning gun laws, you'd better believe they're going to want to get theirs now! The increased customer demand for guns and bullets make the cost of these products increase as well. This explains why AK-47s are appreciating in value faster than before.

Knowing the recent history of gun prices is a good place to start researching them as an investment. Are you buying when prices are historically high or low? The goal of investing is to "buy low, sell high" in order to generate a profit, rather than a loss. Another research area is to determine if there is any reason to invest now rather than later. If you think prices are going to go up, you should buy now! If you think prices will fall, or gun inventories will be overstocked, you may want to wait it out or search for a more promising investment. A third research area before deciding to invest is additional costs. Buying a gun would mean buying ammunition, insurance, a safe and a license. Taking a little time to explore your options could be the difference between the costs of your investment outweighing the benefits! Bottom line: Your investment should improve your financial health, not hurt it.

*The F.B.I. is the clearinghouse for all Federal criminal background checks for potential gun-buyers.

The Credit Education Series: Part 1 of 4

By popular demand and by order of necessity, The Delasol Group brings to you an exclusive four-part series on Credit. In this mini-course, we are going to focus on ECONtreprenurial credit & debt management; that is to say, how to use your credit wisely and not allow it to use you! We eagerly welcome comments and suggestions to appropriately educate the masses on this hot topic.



First things first: Why is it important to establish credit?

The primary reason is because credit allows us to purchase things we do not have the cash for. Now don't be alarmed, there are many smart purchases that you may not have the money for, such as a home or an education. For these things - and other big money purchases - you need credit. It's not mandatory, but it's not common that you can shell out $25,000 in cash for a car or $300,000 for a house.

Another reason we establish credit is because borrowing money and paying it back responsibly allows us to borrow more money. If you are a small business owner, you will need to show some proof of paying regularly on your debts before a bank will give you a loan to expand. If you are a parent, you will need evidence of consistent debt payments to secure a student loan for your child's college education. Just like the saying, "It takes money to make money" it is also true that "it takes credit to get credit!"

Finally, the best deals go to people with good credit. You can expect lower interest rates on homes, cars and credit cards than someone who has a more troubled credit history.

Okay, so how can I build credit or turn my bad credit into something good?

Excellent question! There are two ways to establish or turnaround your credit:

1. Get your free Credit Report.
2. Check out Pay Rent Build Credit.
3. Purchase something on credit and pay it back on time and in full. Repeat.

Every 12 months you are eligible to get a free credit report. Every time you go to borrow money, rent an apartment or purchase a car, someone looks at your credit report to see if you are creditworthy or not. In recent years, it is common for potential employers to pull your credit report too, to ensure that as an employee you won't be more of a Liability than an Asset. Knowing what's on your credit report will save you from disappointment or embarrassment, and will let you know exactly where you need to start repairing your credit. There's only one place where you can get your free credit report. Click here to get yours!

Pay Rent Build Credit is a service that provides people with no or poor credit to build their credit without going deeper into debt. PRBC is a credit repository*, just like Equifax, Transunion and Experian. What makes PRBC different is that it is the first credit bureau to allow people to enroll themselves and lets them demonstrate their creditworthiness from non-debt bill payments. Things like Rent Cable, Daycare, Insurance, Cell Phone, Electric and Natural Gas payments. The "Big Three" repositories don't give you that option. The company gives you two options. If you have been paying on your bills regularly and on time, you can order a verification and key in payments you have made. If you would like PRBC to begin to track your timely bill payments, you should sign up to pay your bills online through one of PRBC's partners. PRBC then uses your timely bill payment history to create a credit report for you with both debt and non-debt payments. Pretty nifty idea! The Delasol Group fully supports this effort and invites you to view the website and watch the brief clip below on PRBC:



Now the third method of building credit - by actually using it - is usually either a complete bust or a bang! The Delasol Group would like to walk you through monitoring credit with your credit report in part 2 of our Credit Education Series. Stay Tuned!

* A Credit Repository is an organization that collects, updates, stores and reports financial information for people who make payments on stuff.

The Delasol Group's Online Guide to Saving & Interest Rates

When you save money, you are paying yourself. You are putting your money away until you use it sometime in the future. Here's the catch: the longer you wait to use your savings, the more you have! In the midst of the most recent and vicious recession that any American has experienced, saving is like the new black, or the new 20, so to speak. It's en vogue. So for those of you who are new to this or are simply out of practice, here's The Delasol Group's Online Guide to Saving.

Choose Wisely. It's important that you know now that small decisions can have a big impact. ECONtrepreneurs have an uncanny ability to quickly surmise smart economic decisions from not-so-smart ones. Should you save $100, charge $100 a month, or do both (Your answer depends on your cash flow)?The regular savings you start now will accumulate quickly over time. The regular debt you incur now will do the same. Choose wisely.


Interest is interesting! If you don't understand interest rates and how they can work for and against you, you should not apply for any type of credit. Excessive interest charges are what keep most people in debt long after they paid off the original amount they borrowed! Why does this happen? For most, the answer is simple: read the small print. But, in the likely event that you won't, here's The Delasol Group's quick and dirty Primer on Interest Rates, at no additional cost!


Interest rates as they relate to saving money are good: the more you save, the more interest gets paid to you. But why do banks pay us interest? The answer is because people are essentially loaning their money to the bank when they open accounts. Your savings don't sit untouched until you make a withdrawal. Your bank uses your money to lend to other people, and when you need a loan, the bank uses someone else's money to lend to you. Confidence (there's that word again) is what allows people to trust that their bank will have their money when they need it. Paying interest is how your bank rewards your trust. If you are looking for somewhere to save money, you should always compare the interest rates on different accounts and consider the bank that has the highest rate of return.

Interest rates as they relate to credit hurt, rather than help you. You are charged interest for taking out a loan or mortgage or opening a line of credit (like a credit card or a charge/store card). It's required that a lender tell you how much interest you are responsible for. Often, you will see your interest obligation rise if you are late on or miss a payment. And, lenders determine the interest you pay based on your credit history. If you have struggled with making debt payments in the past, you will likely receive a higher interest rate. Think of it like this: your interest payments are how you reward the lender for giving you money to buy things you don't have the cash for, such as a home, an education or a spending spree (not advised until your cash flows are well -insulated from random economic shocks) Interest payments in this sense are the cost of borrowing money.



Prioritize Wants versus Needs. This one is simple in theory and difficult in practice. Hold on to your receipts for a week or two and then go back and see what you spend your money on and where you can cut back. Small purchases can be subsidized by ECONtrepreneurship in Action. Eating out too much? Make a better grocery list! Ballin' at Starbucks? Brew your own blend at home! Shop-a-holic? Mix, match and re-accessorize existing clothing to create new ensembles and buy clothing out of season! Take control of your lifestyle instead of allowing your lifestyle to control you.

What ways have you started saving in 2009? Tell us!

Personal Credit 101

WAKE UP! Class is in session. Personal Credit 101.





Credit is without a doubt the hot topic across the country. On the macro level (nationwide) we can't hear enough about the 'Credit Crisis.' On the micro level (you and I) it's interest rates that keep our tongues wagging and pocketbooks asphyxiating.

Some basics all ECONtrepreneurs and users of personal credit should know:

1. Know your status. Before you start using credit of any type, get a credit report. The Fair credit Reporting Act guarantees you a free credit report from each of the three reporting agencies - Equifax, Transunion and Experian - every 12 months. Read more about it here. The only authorized source to get your free report under law is AnnualCreditReport.com. Delasol advises getting the reports separately from each agency; that way you can monitor your credit more frequently throughout the year. You will need your name (a no brainer), date of birth, address (current and previous) and Social Security number.
   
2. Know why it's a big deal for you. The information in your credit report is used to evaluate your applications for credit cards, loans, insurance quotes, employment and renting or buying a home.
   
3. Protect yourself against identity theft and loss of purchasing power.Once you have your credit report in hand, search for accounts you don't recognize and inaccurate information. If you find any, dispute the errors by writing a letter to the reporting agency detailing the inaccurate information; include copies of documents that support your position. If you suspect identity theft, visit the Federal Trade Commission's identity theft website.Monitoring your credit will without a doubt increase your ability to buy the things you want in the future; that's what your purchasing power is. If you are in the dark about your credit history and potential, you're limiting how far your dollars can work for you. ECONtrepreneurs exploit strategies where their money does the work for them. Good credit health is wealth in itself.
   
4. Stay on top of the issues.News reports have picked up on the major credit card issuers' (Bank of America and Chase to name a couple) initiatives to changed the terms for tens of thousands of customers. People who have low card rates but carry a balance month-to-month are being penalized. Issuers are hiking up rates and demanding higher minimum payments from people with great credit and those with poor credit. While in many cases you may contest a rate increase, it is usually granted with the caveat to restrain from using the card further, and is based upon your credit history. If you use credit, use it wisely and don't spend more than you can afford to pay back in 28 days.
   
5. Tell a friend. Word gets around. Helping others become savvy about their finances has positive effects on the whole community. Each one, teach one.

Stay tuned for an upcoming 4-part feature Personal Credit Education series on building and improving your credit history and worthiness, brought to you by the Delasol Group.

Becoming the Change You Want to See

Shoutout to Ben Bernanke.




Yesterday the chairman of America's central bank addressed the nation from none other than Morehouse College in Atlanta, Georgia. Morehouse is a distinguished Historically Black College (HBCU), unique in that it is the only HBCU just for men. Bernanke made a strong statement by choosing the college for his remarks, as degree-seeking students are suffering disproportionately in the current recession.

Relative to their majority counterparts, minority-serving institutions on average have smaller endowments and higher percentages of students from less wealthy families, which means more Federal financial aid dollars per student. For these reasons - amid myriad shared threats to the viability of colleges and universities nationwide - HBCUs are petitioning alumni and outside donors to help struggling students stay in school. The reality for many HBCU students is that higher education is a luxury, not the standard.

Which brings us back to Mr. Bernanke, whose visit to Morehouse was unprecedented by our nation's most prominent economist. He is also trailblazing new ideas to make the Federal Reserve less mysterious, less sphinx-like to the American Public. Whereas in the past, the Fed was notorious for keeping taxpayers in the dark, a new day has arrived. In an online article in the Wall Street Journal it is revealed that the American Fed is considering holding regular news conferences to debrief the public on the Bank's strategies and concerns. The European Central Bank already provides this invaluable service to its citizens.

To back his statement, Bernanke said he is "fundamentally optimistic" about the U.S. economy. Saying,

"Recently we have seen tentative signs that the sharp decline in economic activity may be slowing....A leveling out of economic activity is the first step toward recovery."

Delasol is a business built on education and information. For this reason we strongly advocate Bernanke's proposed role as the nation's "Professor-in-Chief" (the WSJ's term, not ours). Information and preparation are the keys to success. Educate us on the issues, Ben.

How do you feel about a more open central bank?

A Crisis of Confidence

There's is a common belief that if people are confident in their government, businesses and neighbors, the economy will perform well. That is to say, that if people are more happy than mad, more confident than anxious about the financial markets and banks, things will run smoothly for everyone. However, now that we are in a recession caused by overconfident home buyers, investment bankers and speculators, we're just looking for the light of day.


America has at its helm a leader in President Barack Hussein Obama. According to myriad opinion polls, most of the country thinks he's doing a commendable job, considering the quagmire he's [been] elected to commandeer. What makes these arbitrary polls so important? Why do we poll people on the state of the economy, the progress and popularity of the President and the like? What is it that these polls reveal to us?

The answer is confidence.

In addition to managing the world's second largest economy*, President Obama must also become a cheerleader of sorts. If the President is pessimistic about the economy, how can we, his constituents, have hope in his actions to revive it? Inspiring confidence is central not only to the success of the President's economic agenda, but as we saw during the campaign, it's a key ingredient that is central to Obama's success as a person. The audacity to hope, the willingness to accept change and hard work are values that helped him gain the trust - and ultimately the votes - of the American public.

But when is it too much? The President's critics are already clamoring that he's just another tax-and-spend stuffed suit, looking to say and do whatever is necessary to retain his position as the world's latest and greatest political poster child. Others simply opine that he's pulling the wool over our eyes to dupe us into supporting his massive $787 billion stimulus package announced in February. All speculations aside, we believe it's a most prudent move to encourage and rally the masses who are feeling the direct effects of this recession. While many feel that spending is not the way out of the Recession, President Obama has taken great pains to explain his legislative and budgetary actions, most recently in front of a group of Georgetown University students and faculty on yesterday (read the transcript of his remarks here). Sports teams get pep talks before winning games and motivational speakers make a ton of money. While there is no harm in inspiring confidence, it is dually prudent for Americans not to be gullible, vulnerable as we are. It is our responsibility to educate ourselves on the issues and hold our administration accountable for its actions. After all, that's what any reasonable ECONtrepreneur would do.

How has Obama's first 12 weeks in office affected your confidence in the government's (mis)handling the economic crisis?

*The decline of the dollar has resulted in the European Union becoming the world's dominant economy, in terms of Gross Domestic Product.

ECONtrepreneur of the Moment

ECONtrepreneurs are economists and entrepreneurs. Because they must be about the business of securing their economic health - by keeping costs down and building assets - they often have to be opportunists. Now that's not a pejorative term, but an honest one. When a great deal comes along you may have to make a split second decision, no matter how much preening and primping you've done to prepare for that magical money moment.

In a recession, people tend to look inward for inspiration. It is true that one tends to explore their "inner entrepreneur" when money gets tight, often posing the question, "How can I make what I have work for me?" This is a telltale sign of a promising ECONtrepreneur.

Take Mr. Ethan Nicholas for example. I stumbled across his success story in the New York Times earlier this week. Back in August he worked as a computer programmer for Sun Microsystems until he learned he wasn't getting a bonus. Having heard about another guy who earned $250,000 for creating an iPhone application, he gave it a shot. He had to teach himself Objective-C (the coding language of the iPhone) and worked "morning, noon and night" for six weeks. After he finished, Apple approved the application in mid-October. The first day his appliation (iShoot) was made available to consumers, he made $1,000. When it was all said and done, he made $800,000 in five months.

Whoa.

Well, the featured ECONtrepreneur of today is The Delasol Group, founded by Suneye Rae Holmes. Yes, this is shameless self-promotion. However, it is also ECONtrepreneurship in action. Armed with two degrees in economics and a natural gift of gab, I longed to teach but couldn't get hired. So I created my own curriculum to teach my community to become economically literate. This means understanding how big economic news affect you as an individual, defining net worth and its importance and becoming more confident in managing your personal finance skills. I've been helped by the recession as well, because with everyone broke there's a demand for economic and financial literacy. To that end, once everyone is rich again, there will be a demand to know how not to go broke! However while I can't guarantee riches, I can offer you a common sense and reasonable approach to understanding the relationship between your money and the broader economy.

I've been privileged to work with a group called Teen Mothers in Washington D.C. I've designed lessons, board games and simulations to encourage them to open up about their strengths and weaknesses regarding money. Then we build from there. This is the second series of an Economic Literacy workshop I've done for this group and we're moving into the final days of the class. In the coming weeks I am planning to get the students out and into the community, communicating their economic needs and goals to working professionals in a real-life setting. For many of my students, they wish to get their own apartments or purchase a car. I am designing a real-life scavenger hunt to get them some practical experience in securing these things. Not only is this good practice for when they are ready to get said apartment or car, but it's also great networking, providing a point-of-reference when they have questions in the future. In the meanwhile, I am building my company's brand by blogging, designing a website (for myself and others...another ECONtrepreneurial pursuit) and looking to network with other ECONtrepreneurs. Be on the lookout for Delasol and I hope you enjoy watching my small start-up company grow over time.

Do you know an ECONtrepreneur who deserves recognition or at least a little promotion? Shoot us an email about them and we will feature them here! sunrae@delasol.biz

Cheers!

He put us in CZECH

The Czech Republic's Prime Minister had some choice words for the U.S. economic stimulus package today. PM Mirek Topolanek stood before the European Parliament and said the Obama Administration's fiscal package and financial bailout "will undermine the stability of the global financial market" and ultimately is "the way to hell."

Whoa.

You may be asking yourself, just who is Mirek Topolanek? Outside of his role as the PM, he is the current head of state for the European Union (don't get excited, they get a new one every six months) and an opinionated Czech who likes to put others in check. I can't blame him for being suspicious of our government- (taxpayer) sponsored bailout, seeing as how the Czech Republic is a relatively stable economy in an unstable time, has a plethora of homegrown financial wizardry (a good thing?) and abhors its Communist past. Given these facts we can understand Topolanek's anti-interventionist soapbox rant.

BUT, what the world needs now is solutions, not more finger-pointing. We're all in this one together, PM.

The Chinese hate our economic policy too, but primarily because they can't control the value of the dollar. You see, when the U.S. economy collapsed last year, the Chinese - and most of the rest of the world - were holding "emergency money" in the form of, you guessed it!, U.S. dollars. It is common for countries to hold "emergency money" or reserves just in case of...say, and economic collapse. So when the dollar is bad, it's bad for everyone and in this case, the U.S.- Chinese economic yin yang was damaged.



As a result, of this financial dependence on the U.S., China has proposed a global currency to replace the dollar as the currency of "last resort". In this sense, countries who hold reserves won't have a heart attack every time the dollar takes a dip and can have more control over their own monetary policy.

Not a bad idea considering what we've witnessed over the last year in the U.S. Delasol thinks it wonderful that countries are eager to put their own financial houses in order and make smart decisions for themselves. But confidence is the integral ingredient here. Without a strong central government feeding morale to its citizens and reassurance that the darkest days are (hopefully) behind us, people would hoard cash, gold and ammunition in their homes. Trust me, this is not ideal. As expected, President Obama wasn't having it, flatly saying "I don't believe there is a need for a global currency." But if China doesn't want to fund our stimulus package anymore, can we blame them?

Delasol would love to hear your comments on the Obama Administration's economic stimulus package.

Cheers!

The Economics of the "Drug Game"

ECONtrepreneurs watch the news. They understand that national and even international-level policies ultimately have some effect on them. They can't be about the business of managing healthy, wealthy lives if they are in the dark about current events.

Anyone who has been watching the news over the past couple of years has noticed a spike in the number of stories chronicling the breadth of Mexico's drug cartels. It's real, people, and not just in Mexico. The war for firepower, territory and control of the drug supply to one of the most drug-dependent countries in the world has been both ineffective and unprofitable for some time now.

You see, in 1969 former President Richard Nixon introduced the nation to the War on Drugs to "...to curb supply and diminish demand for specific psychoactive substances deemed immoral, harmful, dangerous, or undesirable.(1)" This initiative created laws that were to enforce the new campaign.

Well, enforcing gets...expensive. To reduce the supply of drugs a country must hire and salary cops, DEA agents and the like. To reduce the demand of drugs you have to pay for drug treatment, prevention and education. In fiscal year 2008, the U.S. government devoted approximately $13.7 billion to these efforts.

The shrewd ECONtrepreneur would then ask if what we are paying is worth the cost. Well, to this economist the answer is a resounding "NO!" Don't believe, me? Ask a guy from Harvard. Please meet Mr. Jeffrey Miron.



Miron says our economy would in fact save $7.7 billion a year if drugs were legalized. Hmmm...spend $13 billion or save $7.7 billion? A no brainer. Not to mention that the violence that surrounds illegal drugs would gradually diminish and the government could tax the stuffing out of suppliers.

Delasol does not advocate junkies running a muck in the streets of America. We do however agree with the economic argument that is it more profitable, sustainable, logical and justifiable to treat drugs as a health issue and not as a crime issue.


(1) From the omniscient Wikipedia.

Flying the (not so) Friendly Skies

An article in today's online edition of the New York Times explores the pros and cons of low-cost air travel. How can the average ECONtrepreneur take advantage of this information?

The global economic slowdown has scared (and rightfully so) many into saving more and spending less. Airline travel - a relative luxury - is one of the hardest-hit industries. As people have opted to stay home for holidays and vacations, airlines have struggled to maintain profits and maintain overhead costs without letting workers go.

For ECONtrepreneurs, you can visit any online travel site (Travelocity is Delasol's personal favorite; great prices, easy to customize packages, variety of destinations and a San Antonian company to boot!) and find round-trip fares from Los Angeles to Tokyo for less than a grand, NYC to London's Heathrow Airport for less than $600 or Reagan National to DFW for about $200. Get while the gettin' is good!

Airlines, on the other hand, are imposing new 'a la carte' fares for just about...well..anything! Already passengers have had to fork over cash for in-flight snacks, entertainment and pillows, but the article reveals that similar fees for beverages, Wi-Fi and those roomy exit row seats are in the works, thus making the full cost of flying more difficult for customers to determine. A word to wise ECONtrepreneurs: Don't purchase anything you don't know the cost of!! Many sites (like Travelocity) provide the extra amenities and their costs, so it's always worth it to shop around.

Happy Trails to You!

The Bailout for Busy Folk

Wanda Sykes gives a comedic and coherent view of the United States financial industry bailout!

So over the last year, we have watched with confusion and dismay the fall of the critically acclaimed American economy. But just what the heck happened? The Delasol Group offers its humble version of events below for the learning and reading pleasure of busy folks everywhere.

1. Credit is (was) the lifeblood of our economy. You and I use credit to buy cars, houses and education, and governments and businesses use it to finance new projects, maintain payrolls and expand. Without credit, we'd be forced to buy a car when we had the $20,000 saved up to do so. The cost of the privilege to use credit is the interest rate.

2. In the late '90s and early '00s, jobs were abundant and people had money to spend, invest and save. Credit was easy to get then, and one result was that more people were able to purchase homes. More people purchasing (demanding) new homes drives the price of a new home higher and higher.



3. Businesses benefited from easy credit too. They could invest in equipment and new projects and could afford to hire and train employees. Investment banks on Wall Street were getting paid too, because they trade the loans that people and businesses take out to finance their demands. Over the past decade, credit was increasingly "securitized." As an example: an investment bank may purchase a bunch of mortgage loans and sell them to an investor who wants to get in on the action within the American real estate market. The key is that the loans are only as good as the payments you and I make on our mortgages. Trading these mortgage-backed securities makes immediate cash for the bank. At the end of the first quarter of 2006, the mortgage-backed securities (MBS) market was valued at approximately $6.1 trillion. Whoa. These securities were good for a lot of people's wallets, even if they weren't well thought out investments.

4. It soon became obvious that houses were overvalued and too expensive for less-sophisticated borrowers to maintain. People began to default on their mortgages and in turn, mortgage-backed securities lost a ton of value. Investment banks that got rich quick off of MBS products went broke even faster. If people aren't making payments, the loans are worthless, and banks are stuck with bad debt. Bear Stearns was the first to go under in March 2008. Powerhouses Merrill Lynch and Lehman Brothers followed a few months later. The largest insurance company in the world, AIG, was forced to accept corporate welfare in the form of a multimillion dollar bailout from the government.

5. Everybody is broke; no one has the money to cover their debts and no one wants to lend money out because no one believes anyone has money (duh)! This is the essence of the credit crisis. Without credit, everything stops. Businesses and governments cannot expand, hire new people, or support the people they already have, so they lay people off.

6. So that brings us up to speed, Busy People. On February 17, 2009 President Obama signed into law the American Recovery and Reinvestment Act of 2009 to combat the chaos in the economic markets. In short, he's jump starting a new trend in spending since no one else is willing to. The goal of this is to get people engaged in economic activity again so we can move ourselves out of this mire and start doing business as usual. In a future post we will indulge ourselves on the details of the President's plan to save the world (literally) and explore if it's a boom or a bust idea.

What are your thoughts and questions on the Credit Crisis?

ECONtrepreneurship in Action

Economics is about choices. What kind of choices will you make for your economic prosperity today? Take charge of your personal economy: your cash flow, your work life, your ambitions. Just like we live within the borders of the Nation's economy, you decide the direction of your own economy everyday. Optimize your choices by managing your personal economy like a small business owner: become an ECONtrepreneur! Economic literacy and community investment are tools that go a long way towards a peaceful and prosperous society. Informed citizens can individually and collectively improve markets and become agents of change. Learn to make smart decisions for good economic health. This blog will focus on practical economic education and information. Helping people value their worth and build net worth. ECONtrepreneurship means understanding how larger economic events affect you as an individual. It means being about the business of securing your family's economic future. Learn to let go and dream with confidence. Take a fun and challenging approach to building personal wealth in an uncertain world.

Blog posts will help you decipher and discover the economic activity around you and encourages reader interaction as experience is the best teacher. We are all working to live comfortably and can learn from the pains and gains of others. Communities communicate and congratulate. ECONtrepreneurs know how to hold on tight in a roller coaster economy, and they educate others on how to be safe and smart.


Economics doesn't have to be abstract. Personal, practical economics. Visit often!