Posts Tagged ‘recession’

Lock, Stock & Money

Saturday, March 14th, 2009

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The idea of investing in stocks seemed like a bright prospect a few months back but now it sends shivers down the spines among prospective investors. Share investors have witnessed a tough time over the past six months. Investing in stocks or shares has always been a risky affair, but more so during the past few months as the stock prices went tumbling down, with a steep fall in the economy. Interestingly stock trading is not a new thing and its history can be traced back to the Romans, but the first company to issue stocks was the Dutch East India Company. They pooled in public investment and used it primarily for the building of ships.

Experts in the stock market claim that the one thing that is important for a person trading in stocks is his timing. Investors were quick to realize that they needed to be on the tip of their toes to trade effectively in the stock market. However in the olden days, not everybody had the time to keep a track on the stock prices on a daily basis, and that itself gave rise to a new profession- the Stock Broker. He kept a watch on all your stocks and helped you make a decision on what to buy and what to sell, and charged you a commission (called the brokerage) for his services.

With the advent of technology, the stock markets have seen a radical change over the years. Increasingly sophisticated broking software has not only made it easy for Stock Brokers to trade on the market, it has also meant that a newbie, with a little knowledge about the share markets can take a plunge. The internet has also made it easy for people to trade on stocks sitting at the comfort of their homes, with millions of dollars changing hands in a few milliseconds. Technology has made it possible for algorithmic trading to take place, wherein computer systems are programmed to buy or sell shares when a certain market condition is met.

As with all things related to money, the Stock Market has seen its share of financial scams amounting to millions of dollars. Among the various major scams that have hit the Stock Market hard, the earliest was in 1986 when Barry Minkow claimed to be building a multi-million dollar company and went public with a market cap of $200 million before being discovered that it was a mere scam. However the largest investor fraud ever committed by a single person amounting to a whopping $65 billion was the one orchestrated by Bernard Madoff. He introduced his Ponzi scheme, where instead of investing the money offered to him by his clients it was simply deposited to his business account in Chase Manhattan Bank.

A totally different form of stock scam came into picture in the form of the boiler room. A lot of people have been hit most by boiler room scams, where a smooth talking salesman calls up and tries to peddle worthless shares to unsuspecting customers. Police have called it the biggest threat to households, much bigger than credit card frauds. These are called boiler room scams because the people involved operate out of cramped office spaces with desks and telephones. Police have estimated that there are about 500 boiler rooms operating out of Spain, employing over 400 people. Other favourite Boiler room destinations are USA, Dubai, Berlin and France.

With the economy in recession, investors are thinking twice before plunging into the Stock Market. With statistical figures showing that approximately more than 50% of American households invest in the stock market, it is something that is still considered to be a good investment. It is just a matter of time before the Stock Market hits back with a vengeance. Better hold on to your money until then.

A small word called tax

Thursday, March 12th, 2009

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Filing taxes is something that is dreaded by the common man every year. However it seems our ancestors would be as dreadful as we are since the history of tax can be traced to as long back as 3000 BC in ancient Egypt. Tax was historically collected from the people in the form of a percentage of the crop yield, and this had to be handed over to the Pharaoh. Taxes have evolved over the years, and in modern taxation systems, tax is solely collected in the form of money, and is usually performed by a government appointed agency.

While the collection of tax has always been debated, funds collected by the taxation process are used for various purposes mainly for providing greater benefits and improve the level of basic services such as water, energy and waste management for the people. The rate of tax is fixed by the government, but can be increased depending on the economic condition of a nation. During the eighteenth century, England was at war, and the tax burden increased dramatically by 85% over this period.

In the modern society, taxes can be seen everywhere and they have become a part of life. With the introduction of the Value Added Tax (VAT) in 1954, all commercial activities were tagged with the tax label, and the consumer had to pay a tax for any commodity that he or she buys. History however has seen the weirdest of tax schemes. In Britain, a tax was imposed on windows by William Pitt, as it was considered to be a luxury possession. Nero the Roman Emperor taxed urine, as it was used as a raw material for a number of chemical processes. Peter the Great, the czar who modernized modern Russia is said to have introduced soul tax, for the maintenance of armed forces.

Tax havens evolved as a direct economic response to the principle of taxes, as places where taxes were levied at an extremely low rate or not levied at all. Tax havens can be traced to ancient Greece, where sea traders deposited foreign goods in Greek island to evade the two percent tax imposed by Athens. The oldest tax haven is said to be the Channel Islands dating as far back as 1006 A.D, although economic commentators suggest that the first “true” tax haven was Switzerland. Most European governments had to pay for reconstruction costs for damages suffered during the World War I using the taxpayer’s money, but Switzerland’s neutral policy during the war allowed it to maintain a low level of tax.

Evasion of tax is considered to be a crime, and the non-paying entity or individual can be subject to civil penalties such as fines or forfeiture or criminal penalties such as incarceration. In spite of this, individuals and companies try to evade tax, considering it to be a burden on their income. Individuals have tried various means to evade tax, with the strangest being a person trying to claim his dog as a dependent. Yet another instance saw a man trying to save tax for the money that he had made from donating sperms, claiming that he had been depleted.

With economies on a downturn, tax is becoming the focal point of all discussions on reviving shattered economic conditions. Council taxes have been increased in some places to bring some money in the exhausted council coffers, and Japan is considering cutting tax rates to boost economic demand. Tax has never been so much in the limelight, and it is becoming increasingly clear that this small three letter word will play a big role in the months to come.

How Much Cash do Americans Keep on Hand?

Thursday, March 5th, 2009

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What’s in your pocket?


Americans are losing faith in banks, period. That goes without saying and no explanation is needed. We all know this. The stock market is falling; banks are going down and receiving money just to keep themselves afloat. What is the average American doing? They are stashing their cash or carrying it with them! In the past year, since gas prices started skyrocketing, Americans have started looking twice at their bank accounts and getting nervous. Even then there was talk of there being a recession. People started withdrawing their money in a frenzy and selling their stocks, starting to stash it at home and carrying large amounts in their wallets. So how much money do Americans carry in their wallets, and how much money is stashed in American homes?

The amount of cash Americans carry on their person is directly affected by the area of the country they live in. People in New York and Los Angeles are going to carry way more money than someone who lives in a smaller town like Lorain, Ohio or El Paso, Texas. Since the cost of living is so different, the cash one carries for basic necessities would be much higher in New York City and way lower in Lorain, Ohio. The demographics on carrying money look like this:
The average purse or wallet in the United States contains about $104.

13% of Americans use a piggy bank.

28% of Americans have a coin jar.

15% if people in the U.S. have a large amount of cash hidden in their houses. Out of these people, half of them have it hidden and the other half hide it in plain sight.

1/3 of Americans keep a small amount of cash on hand for emergencies.

Finally, more than 50% of American’s don’t keep any cash at all in the house.

American’s carry cash so they don’t have to use credit cards, foregoing the interest usually incurred in that way. People carry cash because they don’t trust the banks and they haven’t been able to trust banks for at least a year or more. Some carry cash because that’s what they’ve always done and that’s what they were taught to do. Sure a lot of people go into a bank or through the drive through to cash their paychecks, in return getting their cash for no extra fees. What about those who don’t go to the bank and whose checks are automatically deposited? These people will usually hit up the ATM. It’s difficult if possible at all to not incur a fee when using the ATM so this way of obtaining your cash is costing you money. Is the tradeoff worth it?

Some might argue that we’re becoming a no cash society; using less cash and more and more debit and credit cards. I wonder if these people have taken a look at the economy lately because I think we may be going back to using as little plastic as possible.

A Backyard Full of CASH???

Sunday, December 14th, 2008

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dollar cash goldAs we enter into what is expected to be one of the largest recessions in our nation’s history, individuals throughout the United States are faced with the question: “what should I do with my money”? During the Great Depression, many individuals hid cans of coins in their backyards due to their mistrust of the banking institutions. More and more individuals have lost confidence in our current banking system and have begun to question the safety of one of their most safely guarded possessions: money. But what is the best way to protect one’s cash?

Over the years, we’ve all heard of random places to hide money: under the bed, in the freezer, buried in the backyard, in the Bible but where is the best place to put it? My grandmother hid cash for years in the back of her closet between some old quilts that were never used. No one knew about this until after the passed. My husband’s grand-father hid his money throughout his home. He told his widow from his deathbed to throw nothing away in that house without fully going through it. Still to the day, she’ll be going through some old book or other item and stumble upon a $100 bill. Perhaps this was his way of always making sure she was taken care of, but more than likely; he felt it was safer than putting his money in a bank. A close family friend is said to have “millions” of dollars buried in his backyard under a fig tree and while I don’t know if it’s true or not, it does make for a good legend. I’ve often wondered if upon his death, anyone will visit his backyard with a shovel to look for buried treasure!

Of course, burying cash in the backyard is nothing new. During the Great Depression Era, it was common for folks to make “treasure maps” and place their valuables in the ground in coffee cans or old metal boxes. Today a “Ziploc” brand bag, placed in a piece of PVC pipe is a common way to bury cash five feet into the ground. In fact, there’s even an “invention” floating around on eBay called the “Midnight Gardner”. The device is actually a simple twelve by four inch capped, watertight PVC pipe which is said to hold as much as $4,000 in gold, silver, or cash.

Is it a good idea to bury cash? Some say it’s not as the paper money will lose value due to inflation. These individuals recommend investing in gold bullion and burying that as it will hold it value better than cash. There are those that say if the economy got to the point that money invested in banks was gone, that paper money would hold no value either. Others still insist that burying money/gold/etc is a bad idea because it can be easily forgotten or lost. Then, there are those that say that any attempt at “playing it safe” and pulling money out of the economy only worsens the effect of the recession.

In the end, I’m of the opinion that what to do with money is a personal decision and should be made by each individual with regards to what they feel is the safest route for them. As for me, I’ve got a personal stock of cash that I’m seeking a place to hide away for a “rainy day”.