Unrealized Potential: A Glance at Our Economy

by Anirban Basu 21. October 2013

Anirban Basu

Despite a growth rate that has averaged more than 3 percent over the past 25 years and an unmatched capacity to create and support a host of powerful companies ranging from Google and Coca-Cola to Boeing and Caterpillar, the U.S. economy has been stuck at 2 percent growth for several years. Imagine a sports car with incredible get up and go that has had to continuously negotiate a series of speed bumps. Economically, these take the form of higher tax rates, sequestration, rising interest rates, a recently resolved federal shut down, and the uncertainties associated with healthcare reform. The upshot – 2013 will go down as yet another disappointing year for the U.S. economy.

While the government reached a deal to reopen the government, the 16-day shutdown and a standoff regarding the federal debt limit, cost the nation’s economy $24 billion according to an S&P estimate. Furthermore, according to the Conference Board, the economy is set to expand at just 1.7 percent on an annualized basis during the fourth quarter. In other words, the economy may not be entering 2014 with much momentum.

U.S. equity markets, however, have generally continued to surge higher. As of October 10, 2013, the Dow was up nearly five percent since the onset of the third quarter and up nearly 16 percent year-to-date. The Nasdaq Composite was up nearly 21 percent year-to-date as of October 10th, which happened to be 10 days into the federal government shutdown.

The rebound in equity markets is attributable to numerous factors. One is a still expanding, though somewhat disappointing U.S. economy. Corporate profitability and ongoing injections of liquidity into the economy by the U.S. Federal Reserve have also contributed to appreciating share prices.

Of course, Federal Reserve policy influences more than stock prices. Consumers have leveraged low interest rates, including through the purchase of new cars and light trucks. Sales of new vehicles in the U.S. are on pace to exceed 15 million in 2013.

The Federal Reserve will continue to focus on accelerating economic growth as long as inflation remains tame. For now, inflation is not a major issues. Consumer prices rose just 0.1 percent in August after climbing a similarly benign 0.2 percent in July. Despite large jumps in February and June (0.7 and 0.5 percent, respectively), trend inflation remains well within the Federal Reserve’s comfort zone.

Labor market performance remains mixed. While it is true that unemployment fell to 7.3 percent in August, the lowest rate recorded since December 2008, the decline was primarily attributable to the 312,000 people who left the labor force. Only 63.2 percent of Americans presently participate in the labor force, the lowest proportion since August 1978.

Maryland's economy added 43,300 jobs or 1.7 percent to aggregate nonfarm payrolls. Because Maryland is a wealthy state, it is likely that consumers here benefit more on average from the stock market’s rally. This may help explain some of the state’s demonstrated capacity to withstand federally-induced headwinds. According to the most recently available data, statewide nonfarm employment stands at 2,616,200 jobs, a record high.

Looking Ahead

As of this writing, America’s government has been reopened for less than 24 hours. Although the nation was not foolish enough to tempt fate through default, the government could again close on January 15th, less than three months from now. This means that Washington, D.C. will continue to be a source of fixation and uncertainty among the nation’s business decision-makers. That uncertainly will likely prevent the economy from accelerating to 3 percent growth next year. Another 2 percent year is quite possible.

Anirban Basu, Economist, Sage Policy Group, Inc. & First Mariner Bank Board Member

Anirban Basu is Chairman & CEO of Sage Policy Group, Inc., an economic and policy consulting firm in Baltimore, Maryland. Basu is one of the Mid-Atlantic region's most recognizable economists, in part because of his consulting work on behalf of numerous clients, including prominent developers, bankers, brokerage houses, energy suppliers and law firms. On behalf of government agencies and non-profit organizations, Basu has written several high-profile economic development strategies, including co-authoring Baltimore City's economic growth strategy. His opinions do not necessarily reflect the opinions and beliefs of 1st Mariner Bank.

Establishing Credit for Beginners

by Sara Seeger 20. September 2013

Credit Cards






Maintaining a strong credit history can be one of the most difficult lifetime challenges for people; especially young people just starting out. The paradox most people face is being able to establish credit without established credit! A good first step is to apply for a credit card with requirements that are easy to meet. Credit cards are useful financial tools and a great way to establish credit – but used improperly, they can be an easy way to rack up a lot of debt. Before you dive in to the world of credit cards, it’s important to understand credit-related terms, what they mean and how they help or hinder a person’s individual situation.

What is Credit?

Credit is referred to as a specific amount of money that is made available to be borrowed by an individual. Credit must be paid back to the lender (in this case, the bank) sometime in the future. In short, credit allows an individual to purchase goods or services without having to have “actual” money at the time of purchase. The amount of credit a bank will grant a person varies, depending on individual circumstances like credit history/score, existing debt (credit card balances, school and other types of loans, etc.) and reliable employment, to name a few.

Lesson: Establishing credit is necessary and should be handled as carefully as one’s reputation.

What is an Interest Rate?

An An interest rate is quite simply a fee paid by the credit card holder, for the privilege of borrowing money that would otherwise take time to accrue. Many banks offer an interest-free period for new credit card holders (usually 12 or 18 months) that give the borrower a bit of relief on the balance. After that time, interest will start to accrue on the credit card balance unless the balance is paid off in full every month.

Lesson: Look for promotional, interest-free offers, but keep the potential accumulation of interest costs top-of-mind, especially during this interest-free period, to avoid unpleasant surprises and unplanned expenses.

What Determines the Interest Rate on Your Credit Card?

Many banks have a range of interest rates that are assigned to a specific borrower. The primary factor banks use to determine the interest rate that is assigned to a credit card is an individual’s credit score. What’s in a number? Well, a lot, actually. A credit score tells the bank a lot about a person; for instance how much debt already exists, how timely payments are made, if the person has ever defaulted on an obligation or filed for bankruptcy, how much credit is available to the borrower already, etc. In simplistic terms, the lower the credit score, the higher the interest rate and vice-versa.

Lesson: The decision to default on a school loan or to make late payments on credit card balances or other financial obligations can haunt you for years. Think twice before you decide to take the trip to the Bahamas instead of taking care of financial obligations.

How do credit cards work?

A credit card is used as a form of payment and should NOT be thought of as free money. Each time a credit card is used, an individual is borrowing money, which must be repaid in the future. Most bank credit cards require only a minimum payment of the total balance to be paid monthly; however, unless there is an “interest free” period, interest will accumulate on the balance due.

Lesson: In order to obtain and maintain a strong credit profile, it is important to always pay credit card balances on time and to not over-extend credit limits.

Buying a home, purchasing a car, attending college, preparing for a wedding, and even taking a vacation may require credit. Establishing credit is necessary for most people and provides the flexibility needed to attain goals. The lesson to remember is that our actions and choices impact and shape our credit future.

If you found this article useful, be sure to check out these related articles:

Credit Scores: GPAs for Adults

True or False? Five Myths about Credit Scores Unveiled

Home Equity Loan or Home Equity Line of Credit?

Daily Habits of Rich People

by Marylove Moy 22. August 2013

Alarm Clock

Ever wonder how the rich people get rich or stay rich? With so much economic uncertainty these days, it seems almost everyone I know is a bit nervous about their financial future. Interestingly enough, there seems to be some common traits in how rich people structure their day.

Farnoosh Torabi of Yahoo! Finance recently highlighted financial planner Tom Corley and his book Rich Habits: The Daily Success of Wealthy Individuals. (“Wealthy” here is defined as earning at least $160,000 annually and maintaining assets of at least $3.2 million.)

Mr. Corley spent 5 years studying 320 “rich” individuals and determined several common behavior patterns.

1) Early Risers

Almost half of the wealthy individuals are early risers, waking up 3 hours before work; the time is spent reading or working out.

2) Structure

Wealthy people do not waste time. They maintain daily lists of tasks and complete (and check off) approximately two-thirds every day. Also worth noting, wealthy people have short and long term goals (which they review diligently).

3) No Long Lunches

In the movie Wall Street, Gordon Gekko said, “Lunch is for wimps.” He appears to have good company in that Mr. Corley determined that most wealthy people forgo long social lunches; instead they network or conduct business at lunch.

4) Calorie Counting

Wealthy people watch their weight. They limit alcohol and junk food snacks to 300 calories a day. Health is wealth to them.

5) Gossiping

Only 6% of those interviewed admitted to gossiping; they are too busy making money to care about anyone else’s business.

6) Limited Internet

High net worth people spend their down time networking or socializing, whereas the lower net worth interviewees spend at least one hour a day on Facebook and/or elsewhere on the internet.

I don't know about you but I am going to start setting my alarm clock quite a bit earlier and avoid the snooze button!

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