Tuesday, March 18, 2008

The State of The Economy

With the economy in such a state of turmoil did you ever wonder how the federal reserve tries to control or stimulate the economy? Did you ever wonder how the economy works and how this impacts you?
It would be to your advantage to get a clear understanding of all the integral details and how they impact you because your financial future could depend on it.

Whenever there is a downturn in the economy in the form of a recession or a depression the federal reserve will try to control, move , shift, or stimulate the economy in hopes of reversing a very depressed economy. Lowering the interest rates is one strategy. Let’s define a recession. This is when you have a downturn in economic activity, which for the most part will last at least 6 months, but more times than not it is longer. On the other hand a depression will last a lot longer, sometimes years, and its effects cover a broader, wider base and spectrum of activities and entities.

I heard someone define a recession as a situation when people are losing their jobs and a depression is when you lose your job.
Right now we are seeing a number of things that signal a recession such as fewer employment opportunities which is a result of the slow down in economic activity. When people have pessimism about the economy they keep a tight rein on their wallets and purses. Two thirds of economic activity is fueled by consumer spending. If consumers stop buying a lot of employers will have no choice but to lay off workers because the demand for their products and services is not there.

In February 2008 over 60,000 jobs were wiped out. The federal reserve bank is lowering th feds funds rate which helps consumer in terms of the interest rate they pay for auto loans, home equity loans and consumer loans. Consumers will also see less of a return on their own investments as well as a result of lower interest rates.

Just recently I was in a bank inquiring about the rates for certificate of deposits, (CD’s), they were down to 2.5% to 3% , down from 4.5% to 6%. You can probably see how this can impact your financial future.

To Your Great Success

Mel Richardson
VisionStar Enterprises

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