Manage yours.

So this is what they mean about economy.

The macro economy of a state/nation has been so detached from the ordinary person for so long. Years of confusing economic forecast without real consequence to the lives of ordinary citizens, the economy as the fiscal health of a country is nothing but a thought construct to average Joe. This kind of disconnect results into incongruence between the ordinary citizen’s lifestyle to the economic realities of a nation. And that incongruence will can ultimately be fatal to the segment of the economy most affected by popular incongruous lifestyle.

Such is what happened to the housing market in the US. Although this view may be consciously naïve and simplistic, but no one can’t deny that the lack of synchronicity between the everyday life of citizens and the policies of the state that is supposed to be looking up for their welfare is at least partly a suspect to what did unfold. When the opportunistic character of capitalism is let loose without the rightful scrutiny of the government that is supposed to be for the people, that happens.

It’s about time we realize that we our lifestyle is the only our own. It is also an impulse into the overall fiscal health of our collective self – our nation. Our world. It is also about time that governments will realize that it is their duty to manage the economy at large so that the micro economies of the ordinary citizens won’t have to bear the brunt of when the order of things collapse right over their roofs.

You can read more about microeconomics in Business Week and Forbes.

There are various challenges involved throughout the debt reduction process. Hence, it is easy to follow the wrong path, which will end up in more debt trouble. Here are some tips that you should follow because they had been proven to work, no matter what type of debt you are facing and the extent of your debt problems.

1.Take note of your spending habit. Make sure your spending does not exceed the amount of money you earn. This tip involves only basic logic.
2.As soon as you have closed out your debt, put 60 percent of your income to your savings account. The rest should be utilized for your expenses and other purchases.
3.Make a note of all your expenses. This will make it easier for you to budget your money and refrain from wasting them on unnecessary expenses.
4.Always save up for your emergency fund. This will prevent the possibility of borrowing or loaning money to pay for emergency expenses.
5.Avoid using your credit card until your next paycheck arrives. Purchases made through your credit card can incur high interest rates that will lead you into deep financial trouble.
6.Make a budget and stick to it.
7.Utilize the debt snowball method. It works by paying off the minimum for all your existing debts’ monthly payment until you can afford to pay more.
8.Use debt relief tools that will enable you to come up with an efficient plan towards reducing your debts.
9.Track down your expenses. This will enable you to track your spending patterns and pinpoint what you need to change so you can be free from debt.
10.Hire a reliable debt relief firm. You can leverage their expertise and knowledge to eliminate debt in a faster and stress-free manner.

These are basic tips for debt reduction that you should follow at all times. However, leave enough “wiggle” room for other unexpected circumstances to ensure that you can have success with this method.

The US national debt level has topped $14 trillion and is close to reaching the debt ceiling. President Barack Obama is now poised to raise the debt ceiling so that the Federal Government does not default further on its payments. The US national debt level comprises of all the debts owed by the Federal government. Among this surprisingly huge amount of national debt, two-thirds is public debt that is owed to the people, the foreign governments who bought Treasury bonds, bills and the businesses in the US. The rest of the amount is the debt that the Federal government owes to itself and this is known as the Government Account securities. The US consumers have reportedly incurred debts that are soon spiraling out of control. Earnest efforts of the debt management companies to provide the debtors with debt management plan help is going in vain.

As per the reports, the size of the US debt is the largest among all nations. The Treasury bill purchasers are still expecting the US economy to recover so much so that they’ll have the ability to pay them back. Among the foreign investors like Japan and China, the US is their biggest customer and it is allowed to operate with huge expenses so that it keeps on purchasing the exports. Even before the economic recession, there was a sharp rose in the US national debt and according to some reports there had been a growth of 50% between the years 2001-2007 ballooning from $6 trillion to $9 trillion. Meanwhile, the $700 billion dollar bailout allowed the US national debt level to grow up to $10.5 trillion by 2008.

How the US national debt level got so big?

The accumulation of budget deficits has been the primary reason of the surging national debt level. The US government had been cutting down on taxes and increasing the spending. Though this step by the Federal government acted as a short term sigh of relief for the US consumers, but this caused long term harm to the US economy. According to a recent study by the Office of Management and Budget, it has been seen that the budget deficit is at $1.13 trillion, which is more than the $1.7 trillion deficit in 2010. The 2008 government bailout measures, an average of $800 billion on security spending and the economic stimulus package has accounted for the spiraling growth of the US national debt.

How the US debt level affects the global economy

As the Baby Boomers start retiring, it is to be seen that the Social Security funds are paid back within the next 15 years. Since this money is already spent, the government has to look out for ways to boost the income resources in order to repay the loan. This would mean the introduction of higher taxes as the government policy rules out any further borrowing funds from other countries. With the sluggish state of the US economy, the foreign investors are investing more in their own domestic economies rather in the US economy. This lessening demand of the US financial market is drawing a pressure on the US currency, the dollar.

With such negative statistics of the US economy, it is predicted by the US economists that the debt relief industry must take a more crucial part in shrugging off the debt burden gradually. The companies that provide debt management help must come forward to help the debtors restore their personal finances and also facilitate the economic growth of the nation.

The bonds are primary titles issued on a medium or long term, issued by local authorities that give a periodical interest to the shareholder, being bought back by the issuer until the maturity. The bonds won’t give the right to vote to the owner. They are only giving him the right to receive an annual dividend. Moreover, this dividend is not connected with the financial result of the company. From a structural point of view, the bond can be considered a bank deposit, as they are financial instruments bringing a fixed income.

A bond has a nominal value, and it represents the base value considered when calculating the interest. The emission value is the value that must be paid by the investors that are subscribing to the initial process. The reimbursement value is the sum the issuer must pay at the maturity. Usually, the subscription time is longer than one year, but sometimes it could go to 50-100 years. During this period, the bonds can be traded; therefore, they have a secondary market.

The period until the maturity represents the time between the actual moments until the maturity. The nominal interest or the coupon is the sum paid by the company to the bonds holders every year. It is paid once every three, six or 12 months, depending on the terms of the initial contract.

The bonds are classified just like the stocks: nominative and non-nominative.

However, the bonds can also be traded on external markets. This is why they are also called Eurobonds, yankeebonds or samuraibonds.

The special bonds are also a category with particular conditions.

The convertible bonds can be transformed into common stocks after a while. The bonds holder has the right to request a certain number of stocks for his bonds. The indexed bonds are also a special category of bonds. In this case, the coupon is calculated every year by the issuer, considering the financial result and other factors.

An efficient capital market is the market that can assess the maximum amount of information. The prices of stocks at any given moment are based on a good evaluation of any information available in any moment. In an efficient market, the prices are reflected totally in the available information.

This is why all the related information about the issuer must be available on the market, so the investors would have access to it. As long as the potential buyer knows everything about a certain stock, he could evaluate its potential. The efficiency of the market is evaluated taking two aspects into consideration:

• operational efficiency
• allocation efficiency

The operational efficiency is reflected in the access of the buyers to cheap transactions. The intermediaries and the brokers are competing, so the prices of intermediation would be minimum.

The allocation efficiency refers to the relationship between risk and profit. The ideal model implies that prices are established so the titles with the same risk level would offer the same estimated profit. In a market with efficient allocation, the economies are allocated trough investments in an optimal manner, so all the participants would profit. Any new information must be integrated in the same current. In simple words, when a good press release is issued about a certain emitter, the price must reflect the good news even for those buyers that are not aware about the good news.

However, the real model is far from this scenario. A model of evaluation is needed to determine the capacity of a market to integrate new information.

As the investors need a complete image over a certain issuer, whether we are talking about a company or a local or governmental authority, a general accepted method of evaluation called rating was imposed. The rating became an important activity in the latest years, and several companies offering consultancy in this field were imposed: Moody’s, Standard&Poor’s, and Fitch.

Giving a rating to a certain set of bonds implies a qualified opinion that is accepted by all the participants to the market. This instrument is used to differentiate the issuers from the qualitative point of view. The rating is set considering the information obtained by the rating evaluator from the companies. The rating evaluator analyses the company, the sector of activity, and the economic conditions of the country.

The rating is given both to internal or external bonds. The rating expresses the ability of the issuer to fulfill his financial obligations in local and international currency. Every rating evaluator has its own sets of rules. However, some scales and principles are common to all those companies.

The bonds with an investment grade are issued by trusted companies with a huge credibility on the market. This is why their price on the secondary market is usually higher than the price of issuing.

The bonds with a speculative grade have a high risk; therefore, their interest must be higher than the reference interest rate.

Several approved institutions are allowed to work on the capital market. The most important of them are the investment trusts and funds, the financial intermediaries and the institution that hosts the capital market.

The financial systems are different from one country to another, based on the history, tradition, and habits of the respective country. However, several common characteristics can be found for any system.

• The principle of separating the stock and the banking activity is specific to the American market after the Security Act issued in 1930, after the capital crisis from the years 30’s. This principle states a complete different activity of the banking and the monetary market from the stocks market. The authorities of the two markets must be different: on one side, the central emission bank is the authority for the monetary market, and on the other side, the capital market authority is responsible for the functioning of the stocks market. This system was generally accepted by the majority of capitalist economies.
• The principle of central bank allows the banks, and the financial institutions to be generally involved in the stock and capital market, as they could conduct any specific operations on this market. The German market was the main sustainer of this principle. However, the European Legislation eliminated this principle, so today this is only a theoretical concept.
• The mixture principle states a separation of the two markets: the monetary and the capital market. They have different authorities, but the financial institutions are allowed to conduct operations on both markets. This system is still used in the United Kingdom

The authority of the capital market is a governmental institution defined by the law. The main role of this institution is to protect the investments and the transactions on the market. This role is achieved by:

• Imposing informational norms and procedures
• Imposing transparency to the market
• Establishing the norms for the professional activity of the market’s participants

However, the most important role of this institution is to authorize the activity of other institution of the market. This institution must correlate its policies with the central bank, as those two authorities are responsible for the general functioning of the financial system of a certain country.

The citizens, different persons, and individuals are, in fact, the final owners of the productive resources: work, natural resources, capital, and also the managerial ability. The economists of today also consider science as an important production factor.

The income obtained by citizens is spent for goods and services. On the other hand, the productive companies and the commercial societies use the obtained income to pay the resources assured by the same citizens. The economic operators analyze the prices and the profit as signals of the market, using the salary rate as a payment for the workforce and rent. As the final owners of the companies are also citizens, it means that the companies are not using the profit; they are giving it to the shareholders.

Usually, the rent, the profit and the interest produce 25 % of the population’s income in a market economy. The incomes from the salary are spent for goods and services on the respective market, where the offer is sustained by the economic operators.

The economic operators also assure a big part of the working places, and a huge percentage of the goods and services area. The rest of the percentage is sustained by the government trough the local authorities. The economic operators are organized as commercial societies, fabrics, and shops.

The real economic circuit is doubled by an inverse process called financial process. The natural resources, the work and the managerial ability are considered origin producing factors, while the capital is considered a derived producing factor. To represent this producing factor, stocks and bonds are used. However, the managerial ability remains the main factor that ensures the efficiency of the rest of the factors.

The circuit of the financial capital in the economy is realized between the owners of funds surpluses and the capital buyers. The first category places the financial resources on the market, and the second category emits financial actives for those resources. The profit is considered a risk in this equation. This is why the financial actives with a higher risk have a higher estimated profit, while the minimum risk financial actives generate a lower but also safer profit. The funds transfer between the sellers and the buyers would ensure the transfer between the real and the financial economy.

Financial actives, the banking market and the capital market

The financial capital is composed by financial titles and capital actives. Acapital active is a contract between an investor and the outside world, while a financial title is a contract between investors solely.

The financial capital is composed of two distinctive categories of actives:

• Monetary actives
• Capital actives

The monetary (or banking) capital is formed by stocks issued by banks having the next characteristics:

• They are a result of a short term placements
• They are producing interests
• They have a low default risk
• They are not negotiable
• They are liquid

The capital actives are traded on the equity market. Those actives are issued by commercial societies, local administrations and they have the next characteristics:

• They are issued on a long term
• They are producing interests
• They are negotiable on secondary markets
• They have a higher risk than the monetary actives

The hybrid capitals have characteristics of the monetary and capital actives at the same time. Usually, they are issued on short terms. In this category, we can find contracts between investors over capital actives, and standard contracts concerning the financial titles.

The simplest method to sell stocks is addressed by informational methods of communicated using other methods. However, the issuer must prove that his message was received by at least 100 different persons. This method is called public selling offer. The offer of a certain person or company to buy shares from a company is called public offer to buy. Again, all the current shareholders must be informed about this offer.

If the public offer is made for more than 51 % of the total stocks of a company, the offer is called public offer for takeover.

Stocks those are Qualified for the Stock Market

Once issued, the stocks of a certain company could be sold or bought on the secondary market for negotiated prices. However, the stocks must have a certain age before being sold for the first time. Moreover, an older stock that brings a profit every year for the shareholder is more trustful, and its prices will rise after a while.

The vote right

The shareholders also have the right to vote the important decisions concerning the company, including the administrators, the balance, the expenses budgets, merging, and capital increasing decisions.

The right to vote can be cumulative and proportional

The proportional right means that every stock gives a right to vote. For example, for a new merging opportunity, a shareholder having 100 stocks has the right to 100 votes.

The cumulative method is somewhat the same. However, the right to vote of a certain person is multiplied with the total number of points on the daily order.