Modern money mechanics, as described in the banking handbook with this same name, is a system whereby money is created out of debt. This system is used in nearly every civilized country and as of late has been the biggest contributer to the credit crisis. I will explain this system in detail in the following sections, but as a quick foreword, your financial problems are not your fault.
Money, that pretty green piece of paper with official looking seals all over it, doesn’t exist. Money is created out of the need for more money. I’ll give you an example. The government electronically sends the federal reserve a request for ten billion dollars. The federal reserve replies and then starts to print the money and these bills become federal reserve notes. The government in turn begins to print out some official looking pieces of paper called government bonds. A 10% reserve is held out of the ten billion and the nine billion is the excessive. Because that nine billion is consitered the excessive, new loans can be created based off of that amount.
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Many of you were surprised that there were tax law changes included in the Emergency Economic Stabilization Act of 2008 because most of the coverage has focused on what the Act is intended to do for the economy, specifically, helping the credit markets get back to lending.
One question I have been getting recently is…
How do you keep your wealth strategy moving forward when it’s more difficult to get that business loan or real estate loan?
If you have ever heard me speak about creating and building permanent wealth, then you know that I use leverage as a fundamental tool to build wealth. But, remember, that leverage comes in many forms. Loans are just one way to use leverage in a wealth strategy.
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Have you ever noticed that the things you buy every week at the grocery and hardware stores go up a few cents between shopping trips? Not by much…just by a little each week but they continue to creep up and up.
All it takes for the price to jump up by a lot is a little hiccup in the world wide market, note the price of gasoline as it relates to world affairs.
There is a way that we can keep these price increases from impacting our personal finances so much and that is by buying in quantity and finding the best possible prices for the things we use and will continue to use everyday… things that will keep just as well on the shelves in our homes as it does on the shelves at the grocery store or hardware store.
For instance, dog food and cat food costs about 10% less when bought by the case than it does when bought at the single can price and if you wait for close out prices you save a lot more than that.
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As a fourth generation banker, I literally grew up at our local bank in Pensacola, Florida, The Citizens & Peoples National Bank. I can’t remember a time in my early childhood when I didn’t dream about being the president of this great company. To follow in my fathers’ footsteps and succeed him as president was the basis of that recurring dream. As a child, I would love it when my father or mother would take me to the bank. I would run around and speak to everyone and I considered many of those employees like my extended family. Everyone enjoyed working there and the warmth and hospitality they displayed impelled me to want to work there someday.
I joined the bank in 1982 and felt that I was well on my way to fulfilling that dream when something happened that changed everything. On October 6, 1986, my grandfather passed away. At the time, he was the Chairman of the Board of Directors and the former president of our bank. As an independent bank with a limited number of stockholders, and he being one of the largest stockholders, our future was pretty certain. We were at that time rated as one of the top 100 banks in the nation in safety and soundness. For a small independent bank, this was unprecedented.
After he died, there was clearly a change in attitude that was led by the Board of Directors to bring the bank forward to be a major player in the Pensacola market. To change how we did business in order to compete with the other national and regional rivals within our community. There was also a faction of stockholders and directors that were insistent to test the waters for a possible buyout although my father was against it.
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As high numbers of people reach retirement age, long term financial security is becoming a major concern. With the view of plummeting social security advantages, pension plans and volatile 410K retirement plans getting non-existent, most of the people are looking for other retirement options. Now, they believe that they are left with only one viable option retirement investment.
With modern day economic recession and rising food, and fuel prices, it has become almost impeccable to save for the future years. Individuals expecting their retirement within 10 to 15 years go for high return retirement investment, but at the same time are skeptical whether it would be safe and secure or not. In most of the cases, average people do not have enough cash required to earn high rate of interest, which on the other hand wealthy people enjoy.
Both long-term and short-term retirement clubs have emerged over the internet, which helps quite a lot in removing the road blocks for numerous entrepreneurs. These programs are very efficient and present their member with the chance to understand dividends, which at times is well beyond the average investor’s reach. Besides, they provide you with a viable retirement income option, which you need the most after retirement.
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Protecting your savings from Inflation:
With RPI hitting 5% in September 2008 i thought it was time to see what accounts allow a real positive return and it is not good.
RPI at 5% means a basic rate tax payer needs a gross return of 6.25% and a 40% taxpayer needs 8.33%. If you are not getting these rates on your current savings accounts your savings are losing value in real terms. Even many ISA’s are paying less than 5% so also bad news.
The best of the bunch for ISA’s is the Post Office paying 6.25% on £1 minimum. If you don’t have that amount consider the HSBC ISA paying 6.25% on minimum £1.
The best of the fixed rate bonds are ICICI 7.2% requiring £1000+ and the AA paying 7.21% on minimum £500+ . These will give inflation beating returns for a standard tax payer but not if you pay 40%.
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Exposing Fraud, Deters Fraud
One mistake management can make is to not let the fraud out into the light. When a fraud is swept under the rug, no one learns: not management, not the employees, and surely not the general public. Though some frauds are best kept with a tight lid, most need to be exposed so that every level of management is on the same page and can then keep key decision makers aware of how to deter the same fraud from occurring again. History will definitely repeat itself if individuals know what and how to overcome weakness in a Company’s internal controls.
Exposing a fraud is smart (see the statistic below on employees), as long as the Company changes how they conduct their business to help overcome future fraud from happening in that specific area.
An Experienced Auditor Can Detect & Expose
In a 1998 KPMG Fraud Survey of 5,000 U.S. companies (note: multiple responses given), 43% of the time the fraud was discovered by an Internal Auditor. As a result of a boom in fraudulent activity around the time of Enron and WorldCom, Auditors Internal and External to a Company have spent a great deal of time acquiring education and training so that they are aware of what to look for. The result, a reduction in securities fraud and white collar ‘cooking the books.’
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The international shortage of credit is continuing to bite, and as of August 2008 there is still no sign of it easing. This means that for many individuals, finding a remortgage deal or any other kind of long term credit could be difficult.
However, taking out a remortgage deal it is not an option to stumble into blindly: taking expert mortgage advice is critical to ensure that a remortgage deal is affordable and will leave a borrower’s day to day finances in a more affordable state. To get the best rates on a remortgage deal it is also imperative for all prospective borrowers to research the market thoroughly and get a wide range of remortgage quotes.
But in the credit crunch, is it still possible to secure a good remortgage deal? The answer is yes.
Contrary to popular belief there are still plenty of remortgage deals available in the market; total mortgage lending in July totaled £4.3billion, only slightly lower than the previous six-month average figure of £4.8billion. For people with good credit records securing a good remortgage deal is unlikely to be a problem. It is imperative that prospective borrowers maintain a good credit rating while gathering a remortgage quote.
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