LEMMENJOKI

The Great Depression In American Banking

In the year 1929, there was a crash in the stock market. After this, the U.S. has suffered depression that would have lasted  for years. Mentioned below are some of the major causes as well as effects of the Great Depression in American banking.

What Was The Great Depression?

From the year 1929-1939, the U.S. has experienced one the ruthless downturns in the country’s history. It started with the crash of the stock market in 1929 and the following decade was seen to be marked by high rate of unemployment as well as bank failures. Worker lost their jobs as well as their homes along with their possessions.

Many people who kept their jobs, hardly earned enough to meet up their needs. The currency valuation also saw a steady decline and simultaneously the agricultural market has gone through a downfall. Panic became widespread in the country and the lives of the people also got affected badly. By the year 1933, almost half of the banks in the U.S. has failed and nearly 15 million people lost their jobs.

What Were The Causes Of The Great Depression?

It was never only one factor that caused the Great Depression but rather a combination of domestic as well as worldwide conditions. Here are some top reasons that have been cited as the causes of the Great Depression.

Crash Of The Stock Market In The Year 1929

The stock market crash that took place in the year 1929 is one of the cause of the Great Depression. It was considered as one the main causes. Two months after the main stock market crash in the month of October, many stockholders has almost lost greater than $40 billion. However the stock market started to regain some of the losses. By the end of the year 1930, it did not turn up to be enough and America entered into what is known as the Great Depression.

Failures Of The Bank:

During the year 1930, many banks saw failure. Deposits in the banks were not insured. As a result of bank failures, people also lost the savings.

The banks that survived were unsure of the economic condition and were more concerned about their individual survival. They stopped being willing enough for creating new loans. This worsened the condition and lead to much less expenditures.

Purchase Reduction:

The stock market crash along with fears related to more economic distress, forced individuals from different classes to stop purchasing items. Thus there was a decrease in the production of the number of items and also workforce decrease. People lost their jobs.

Thus they were not able to continue making payments for the items they already bought through installment plans and so there occurred repossession of their items. Accumulation of huge inventory began. There was a rise over 25% in the rate of unemployment. This implied that even small spending to aid will alleviate the economic condition.

Effects Of The Great Depression:

Some of the main effects that took place in the years of the Great Depression are:

Rise In The Unemployment:

The wages for many workers were not as high right before the occurrence of the depression. The banks could not offer savings for the people as well as companies were falling apart. As a result the level of unemployment increased to high rates. The Great Depression began with the rise in the unemployment rate but still under 10%. As nadir was reached by the depression, it become worse significantly. It went past 20% in the year 1932 and by the year 1933 it was almost 25%.

Closing Of The Banks:

There was practically no existence of confidence as well as belief in the financial system of the U.S. after the crash of the stock market. This affected the banks to a great extent. Many people started to withdraw the money that they had from the banks. They either preferred to store it or purchase gold. Banks accounts were closed and banks were not having enough cash available to meet up all these withdrawals.

Such bank runs were done by the depositors with a hope of getting back their money before there occurred complete collapse of the banks in the most adverse scenarios. But this most adverse scenario turned up as real life scenario and more than 9000 banks failed. As a result there was a loss of billions of dollars that the bank depositors could not recoup.

Great turmoil was presented for the country as well as the world by the years of the Great Depression. After this struggle, lessons were learnt by government and also the Federal Reserve to avoid allowing a recession becoming a depression of the same vastness ever again.

Types Of Business Loans With Which You Can Benefit

Business wants money for many reasons. According to a business statistic report, six percent of small scale business require some sought of external funding for a different variety of purpose.

In the current turbulent economy where every business faces tough competition to stay in the market, many businesses go bankrupt unable to manage the business.

An Alternative To Your Business Bankruptcy

In the fast-paced tough economy, a business loan is the only alternative for the small business owners to obtain cash to sustain in the business.  When you get an efficient business loan, you can witness an immediate growth to your existing capital. There are a plethora of reasons to consider getting a business loan. Some of the basic and essential rights are

  • Secure financing to maintain a business operation
  • Invest in inventory and equipment
  • Locating to a new premises
  • Expanding the operation
  • Other business needs

When you take out a loan, you will have enough money to become larger, and it will become easier to maintain proper cash flow in the business which will enable you to cover any unexpected expenses.

People who have decided to go for a business loan often weigh its pros and cons to determine whether it is worth considering for a loan. Although the pros and cons can vary depending upon a lender, however, there are some common aspects like terms, repayment, revenue projections that are much similar to all the lenders.

Let us overlook the benefits of bank loans.

Banks Never Going To Intervene On Your Expenditure

Unlike investors, the bank is not going to look, how you are spending the money. However this is not the case of the investor, you always need to work alongside and show how the money borrowed is spent on your business. This is pretty frustrating and an unfriendly approach for the business owners.

Apparently, banks after lending the loan will not interfere with your business operations and will leave you at peace.  They only want them to repay the money at regular intervals with the defined interest rate. Hence you can feel free and do anything you want.

Business Loans Are Easy To Get

If you have less time in business, challenged credit or low annual revenue,  getting a business loan can be difficult and turn challenging as well.

However when you have an established business with a strong financial background something like good credit score, long history of business, produced good annual revenue, then getting a business loan is straightforward and easy to understand.

In addition, once you have furnished all the details correctly and submitted the application, you can get immediate approval. However before getting a business loan, first you need to understand the different types of business loans and alternatives:

Merchant Cash Advance

This type of loan generate a lump sum payment, allows the business owner to obtain an advance of the funds regularly flowing through a business merchant account. Traditionally the transaction is made through credit card payments or other receivable streams.

Invoice Financing

Otherwise known as asset-based lending products, is a methodology for a business to borrow money against the amounts due from the customers. The obvious advantage of invoice finance is, the majority of the invoice will be paid within 48 hours.

Business Lines Of Credit

This loan provides a lot more flexibility than a typical business loan. The only difference between the business line of credit and line of credit is, with business lines of credit, you can borrow only up to a certain limit. Apparently, it is a revolving loan, providing access only to a fixed amount of capital.

1 Hour Payday Loans

When a business doesn’t qualify for a line of credit loan, then 1 hour payday loan will be there to help you save your business. However, these loans should be repaid when your next paycheck arrives. They are simple investment products with an upfront lump sum money; however, the fees are much higher than other types of loans.

Equipment Financing

Equipment loans are generally secured by the equipment that is being purchased, and this doesn’t require collateral to get the loan. It is a monetary loan that helps small business owners pay for the piece of the equipment. Perhaps, a very useful loan for the business expansions and growth.

Term Loans

When your business needs immediate, one-time cash either to purchase an asset or an inventory, term loans can be really worth considering because, with these loans, you can get upfront lump sum money which can eventually help in growing your business.

SBA Loans

SBA loans can help you start, buy or expand your business. Some business loans usually take more time than other loans in terms of paperwork or funding however when you think about the advantages it offers, and it is really worth it.

Closing Thoughts

Not every business loan will be fit for every organization although they are absolutely fantastic. So, when you are considering the loan, compare the interest rate, how much timeframe it requires for funding and the duration of the loan to conclude to a wise decision.…

How To Pay Off Your Mortgage Faster?

Paying off the mortgage faster is not difficult if you plan the finances correctly. If you clear off the mortgage early, you will be able to save a lot of your money on the interest. So here lie 5 tips for clearing off your mortgage faster.

Opt For Bi-weekly Payment:

If you have been making a monthly payment, you can switch to a bi-weekly one and pay a half-sized amount every two weeks. Thus if your mortgage payment is $1000 in a month, you can pay $500 every other week. It will also have almost the same impact on the budget as one payment every month. But since there are 52 weeks in one year, a bi-weekly payment schedule will be resulting in 13 complete payments in a year rather than that normal 12. You will be paying an additional amount each year without begging around for additional money. So if have a mortgage of $200000 mortgage for 30 year at a rate of interest of 5%, you should make biweekly payments rather than monthly ones as it would help you to save $34328 in interest and will allow you to clear off the loan almost 5 years early.

Repayment At Higher Rate:

Pay off your mortgage at a higher interest rate of you wish to clear it off early. Avail a loan at possible lowest rate of interest. Add either 2 or may be 3 points to the amount of repayment. So if you take a loan at 4$ and clear it off at 5%, you would not even have a look if the rates rise up. The best thing is that you will be clearing off your mortgage faster and also saving something.

Pay Maximum Down Payment:

Make 100% down payment as it is the best way to buy a home. Paying cash for buying a home can sound strange. But it will be much relaxing if you do not have a mortgage. If you cannot delay the purchase of your home until and unless you can pay the cash, make a plan to at least make 10% down payment. You can also pay 20% if possible as then you will be avoiding paying the private mortgage insurance. It typically ranges between 0.5 and 1 % of the loan amount in a year. For example on a mortgage of $250000, the private mortgage insurance will be costing you $1250-$2500 per year. Remember that the more cash you give away as down payment, the less money will be required for financing. As a result you will have to pay lower money for the mortgage every month. This will make it easier to clear off your mortgage faster.

Refinancing Into A Loan With Shorter Term:

If you have a mortgage for 30 years, you can refinance it as a loan for 15 years. It will be blasting through the mortgage much faster and will give a better rate of interest too. Shorter terms for the loans are typically teamed up with lower rate of interest. Due to the shorter time duration, you will be paying less interest. So the amount that you will be paying on a loan of 15 years will not be double the payments of a loan for 30 years. They will much less. With the help of the mortgage calculator, find out how much you have to pay for a 15 year refinance. So if you see that the payment for such a loan very month is not what you can afford, then avail a loan for 20 years.

Make Use Of A Windfall:

If recently you earned or got some unexpected money may because of inheritance or wedding gift or even due to any unexpected gain in investment, then use the entire amount to clear the mortgage principal. Remember that all lenders and mortgage come with their individual rules of prepayment. Some will let you make monthly double-up payments, while other will let you pay as much as 20% lump sum of your original mortgage principal as prepayment. To prevent yourself from paying any prepayment penalty, go through the mortgage document properly or contact the mortgage lender.

So if you the financial situation to clear off your mortgage faster, then you should consider it. By paying off your mortgage sooner, you will not only be out of debt but will own your home very soon.…

How To Pay Off Student Loans?

To qualify for student loan refinancing you’ll need a stable job and good credit. Pay more than the minimum payment. Make extra payments whenever you can. Consider refinancing your student loans. Start a side hustle. The more you pay toward your loans, the less interest you’ll owe, and the quicker the balance will disappear.

Inflation, Stages And Types Of Inflation

When the prices of goods along with services increase, inflation occurs. There are many types of inflation such as creeping, walking, galloping and hyperinflation. There are also a specific asset and wage inflation. Mentioned below are the stages and different types of inflation.

What Are The Different Stages Of Inflation?

Inflation will pass through three different stages. The three stages of inflation are described below:

The Pre-Full Employment Stage: 

In the first stage, there occurs a rise in the price level. It is less than proportionate to the supply of money’s increase. If the supply of money increases by 10%, so there will be an immediate price level rise. Hence the production of goods, as well as services, receives some stimulus. Because of this increase in the goods and services output, the price level will fall. But if again there is an increase of 10% in the supply of money, there will be a rise in the price level. This will encourage good as well as services produced in the economy. Thus if there occurs continuous increase in the money supply, a stage will be seen when the goods, as well as services output, may not be increasing in the same proportion in which there is an increase in the supply of money. The reason is that with production expansion, there is a decline in the supply of the production factors.

The Full Employment Stage:

 If without any disturbance, the supply of money keeps on increasing, then there the production will stop to increase after some time. The production will be becoming stagnant. The only reason is that each and every productive resource are completely employed then. Additional resources are unavailable for further production expansion. Hence the further production expansion ends. Since the production becomes persistent, the price level will start to increase in the same proportion as there occurs an increase in the supply of money.

The Post-Full Employment Stage:

If there is a continuous increase in the supply of money, even after that time of full employment, then for a certain time there will be an increase in the price level. It will be in the same proportion in which the increase takes place in the supply of money. But afterward, the supply of money increases a lot that people loses confidence in it. Moreover, the increase in the price level is high than that of the supply of money. So if the supply of money is 10%, then there is an increase of 20-30% or maybe even 40% of the price level. In this kind of a scenario, it is very difficult to examine the rise in the price level. This is known as the final stage of inflation. There will be such a high rise in the price that there occurs a replacement of money exchange by commodity gradually.

What Are The Types Of Inflation?

The two main types of inflation are:

Demand Pull:

The most well-known cause for inflation is the pressure that takes place due to the ever-rising demand on a stagnant or maybe less rapidly increasing goods and services supply. The expansion in total demand may be because of the private investment that increases rapidly or the expenditure of the expanding government related to war or development of the economy. Attempts are done for production expansion when the demand starts to expand and exert pressure on the prices. But this is not possible always either because of unavailability of any employed resource or scarcity of transport, capital, equipment, and power. Expansion in the total demand after full employment level leads to an increase in the price level. Resources are being used for the growth, to create fixed assets as well as for consumer goods production. Large expenditure will be creating large income money and demand but without any corresponding increase in the real output supply.

Cost Push:

In some situations, the prices rise up due to the increase in wages that are strained upon the economy by labor leaders under the threat of a strike. Manufactures also cause a rise in the cost through a system that fixes a higher profit margin. The common people usually put the blame on profiteers, speculators as well as hoards or others for causing an increase in the cost along with the prices. The government is again considered responsible for increasing the costs by forcing new taxes as well as continuously increasing the rates of taxes related to the existing commodity. Hence the rising commodity taxes rates in the market of a seller will let the producers increase the prices by the complete tax amount. Under these conditions of the rise in price, business, as well as industrial unites, will find it convenient to pass on the stress of increased wages to the consumers by making a price rise. Thus the increase in wages, margin of profit along with taxation will be held responsible for this cost-push inflation.

So anyway, people are always affected by the high rise in inflation. The rising rate of inflation is a failure sign of the part of the government.…

The Emergence Of FDIC (Federal Deposit Insurance Corporation)

FDIC or the Federal Deposit Insurance Corporation is a US Government aided agency and was founded with the idea of protecting its consumers and to maintain the stability of the U.S. financial system. Their primary job is to create deposit insurance to help the customers evade losses shall a bank fail.

What Is FDIC?

The 32nd President of the United States, Franklin D Roosevelt was the main brain behind the New Deal Program to elevate the US out of the Great Depression and a part of this New Deal ordnance was to call the banks to reflect upon their dismal failures. The Banking Act of 1933 was signed and implemented into law by President Roosevelt himself to use that as a temporary countermeasure the losses incurred against bank deposits if they fail again.

This new law paved the way to the birth of a new organization, however temporary in nature which was named Federal Deposit Insurance Corporation (FDIC). The same was deemed permanent in 1935. Since its inception from January 1, 1934, not a single penny of any deposits has been lost for bank failures.

Till date, FDIC has increased the coverage amount to $250000, the most recent change being made in 2008 which can firmly solidify the organization’s importance in the US economy. This also states that an individual bank paying and belonging to FDIC always ensures that all of their customer’s money is protected up to $250000.

FDIC: 1980 Bank Crisis To Present

Many banks in the United States kept on flunking during the Post-World War II period because of the several adversaries like high-interest rates, recessions, inflations and deregulations which created a void in the banking and economic environment in the 1980s. A change in the monetary policy of the Federal Reserve adding with inflation hiked the interest rates. These high rates along with a fixed rated emphasis were the warning sign for the beginning of bank failures.

The 1980s witnessed the start of bank deregulations with DIDMCA being the significant addition to the law which eliminated ceilings for interest rates, loosening of restrictions on lending policy and the usury laws got overruled in many states. In 1981-1982, during the recession period, Gam-St. Germain Depository Institutions Act was passed by the Congress which acted as a catalyst for bank deregulations and procedures of dealing with bank failures.

All these resulted in a 50% hike in loan charge – offs and as many as 42 banks went bankrupt in 1982. 27 more commercial banks failed during the first 6 months of 1983 and almost 200 banks kept of flunking by 1988. FDIC was required to play its role of paying claims to the consumers of the loss-making banks for the 1st time in the post-war era which at the end highlighted how important was the creation of FDIC and the importance of the deposit insurance.

During this period several other significant events happened like Deposit insurance funds were discontinued in 1983, Congress refinanced FDIC by $10 billion yet FDIC lost money for 1st time in 1988 as 200 FDIC insured banks failed altogether. They overturned that loss and FDIC insurance premiums went from 8.3% to 12% per $100 deposits in 1990. 1991 saw the premiums go up to 19.5 cents per $100 of deposits, FDIC borrowing capacity increased and the least cost resolution was written and imposed by law and the system based on the rich based premium was formed.

By 93, Banks started paying risk-based premiums as the economy saw premiums reaching 23 cents per $100 from the previous 19.5. As of April 2006, deposit insurance for IRAs or Individual Retirement Accounts have been increased to $250000. 2008 saw the signing and implementation of the Emergency Economic Stabilization Act on the 3rd of October which raised the basic limit of government deposit insurance coverage to $250000 from $100000 per depositor although temporarily.

This legislation stated that the insurance limit of the basic deposits will go back to the original figure of $100000 on 31st December 2009. But another new legislation made the insurance limit to be made $250000 permanently in the month of July 2010.

FDIC maintains the Deposit Insurance Fund, by calculating insurance premiums on the basis of their degree of risk on the insurance fund. By calculating so, FDIC has collected a fund large enough now to safeguard consumers against any future bank losses.…

Pros And Cons Of Certificate Of Deposits (CDs)

You will get many benefits if you invest in certificate of deposit (CDs) accounts. But it also has some risks. Understanding the pros and cons associated with CD is important to open a CD account. So, examine the below-mentioned pros and cons of CD and make an informed decision.

Pros:

Fixed Rate Of Interest:

When you will open a CD, you will decide how much you wish to invest and for how long. There are many banks that will also let you open a CD account online. In return, you will be receiving a fixed rate of interest.

Safety:

Your funds are safe when you invest in a CD. The Federal Deposit Insurance Corporation will insure CDs up to $250,000. The federal government will give you a guarantee that you will never lose the principal. As a result, CDs are less risky than bonds, stocks or any other investments that are more volatile.

Ladder Options:

It is an investing strategy. In this ladder options, a customer actually invests in CDs of increasing lengths (1 year, 2 years and so on). This allows the investors to tap into the customer’s money along the way. Some of it is also kept invested for a longer duration.

Expected Returns:

CDs are more definite than any other investments. When you will invest in a CD, there will be no question how it will work or for how long you require to keep it. You will be investing a certain amount at a locked rate for a certain time. For example, $10,000 @ 2.25% for 1 year. You will be aware of how much return you will get at the year’s end: $10,225.

Options For Interest:

You should never assume that the interest that will be earned on a CD, can be collected only once it gets matured fully. This is because there are several banks that will let customers select to receive the interest earned very often (monthly or maybe annual). If you select monthly, then each month you will be paid the interest and can select to reinvest it in your CD account in order to earn more interest. You can also send the interest paid to a separate account with no penalty.

Cons:

Locked Rate Of Interest:

The rate of interest gets locked in for the CD term. Even if there are too much market fluctuations, then also the CD rates are never variable, until it is time for withdrawal or rollover. Stability along with low risk is CD’s selling points. Thus it makes potentially beneficial variability unavailable on the basis of the financial climate.

Less Liquidity:

If you have a savings account, then your money will be easily accessible during any financial emergency or any change in your spending priority. But with CDs, you will never be able to withdraw your money whenever you wish. If you do, you need to pay a penalty. Most of the banks will be charging you some of the accrued interest. It may also be part of the original investment if you make up your mind to withdraw early. Such penalties mean a loss of interest or may be a loss of the original investment.

Miss Other Investment Opportunities:

Your money will be tied up if you invest in a CD. So you would not be able to transfer it to any other financial product even if it will give you a higher return during the change of interest rates. Since you are locked in you will not be losing anything but you will not be able to either increase the interest margin.

Inflation

CD rate of interest can sometimes struggle a lot to keep up with the inflation. CDs never pay sufficient to keep up with the inflation rate. So if you invest in CD, you will be losing your standard of living with the passage of time. When inflation will rise, the dollar value will be going down. So if you make an investment of $1000 in a CD for 1 year along with a rate of interest of 1.5% and if the inflation rises 1.9% in the same year, your money will become less valuable at the year’s end. In such a scenario, it will be much better to keep the money in a much flexible savings account that has a high rate of interest. You can also look out for an investment that will have a chance of giving better results than a CD.

So when it is about CD investment, the pros and cons will be related to predictability as well as flexibility. You can find the balance between those two that will work the best for your financial condition.…