INC-centricity

Psychology of Recession

That's a bit of a pretentious heading - as if I'm qualified to comment on either psychology or economics. However, as an amateur observer of the human condition, it does strike me that a significant component to our current economic quagmire is largely in our head. It seems that while we have transitioned over the years from an agricultural economy to a manufacturing economy to a service economy to an information economy - what we really are is an economy of confidence. When we lose that intangible, psychological element of our collective selves, we perceive ourselves to be in huge economic trouble. And, because we are an information-based economy, we have an amazing ability to measure, calculate, survey, report, broadcast and share our lack of confidence with the world. 

But the reality is probably much different from our perceptions. Just as the roaring real estate bubble led us to believe things were better than they actually were, the constant talk about foreclosures, layoffs, and economic "crisis" of all kinds probably has us believing things are now much worse than they actually are. 

I liken this to following my favorite sports team: The Wolf Pack of the University of Nevada. I am a huge college basketball fan, and because I don't live in Reno, I follow my team at a distance, which means - because I am also a geek - I lurk on the main message board devoted to my beloved Pack. 

What I see there from game to game is, I think, a microcosm of our overall reaction to economic news. When the Wolf Pack wins, the fans are elated and ready to take on the champs. When the Pack loses, the fans angry, frustrated, depressed, and evidently prone to drown their tears at the local pub. The confidence swing from week to week can be really amazing. 

A small losing streak of a couple of games has the diehards prepared to fire the coach, complain to the Athletic Director, cancel their season tickets and commit hari kari. A modest winning streak and the fans have the basketball team back in the Sweet 16. Same team. Same coach. Same talent. Same season. Yet, wildly different perceptions of how good or how bad the team really is.

I've learned that you just can't trust the fans to accurately judge the team's performance. And you can't trust the talking heads at CNN, CNBC or the Dow Jones Industrial Average to accurately judge the performance of the economy. In all of these cases, the commentators are biased - one way or another - by the psychology of the moment. 

Bottom Line: It probably isn't as bad as it seems.

War on "tax havens"

This from The Guardian:

The world's most secretive tax havens are to be prised open after Barack Obama's new administration endorsed far-reaching legislation to crack down on them.

The decision to force "secrecy jurisdictions" to reveal the identities of the super-rich and major corporations who use them came from the US treasury secretary, Timothy Geithner, at a congressional hearing and will be seen as a blow to places such as Jersey, the Cayman Islands and Switzerland.

"We fully support the legislation … on offshore tax centres, and we look forward to working with you as part of the broader effort to address international tax evasion and close the tax gap," Geithner told the House ways and means committee late on Tuesday.

Key measures in the new legislation, now likely to be in force within 12 months, include revealing the beneficiaries of secretive trusts and identifying "offshore secrecy jurisdictions" that "unreasonably restrict US tax authorities from obtaining needed information" as well as severely increasing penalties against tax evaders and closing numerous loopholes.

What have I been saying?  At the end of the day, asset protection strategies that rely solely on secrecy will bring you nothing but trouble.  Rely on statute for your protection, not on snake-oil secrecy.

Protecting Your Credit in Economic Decline

The "credit crisis" has become ubiquitous.  It is being blamed for everything from home foreclosures to a plummeting stock market.  Many individuals and most businesses are feeling the pinch from the credit markets today.  Which is precisely why it is so important to carefully manage and protect your personal and business credit profile during these turbulent times.  Those who are able to survive the current recession with their credit profile intact will have so much the advantage in the economy to come.

Lynette DeNike wrote a worthwhile article for the the Washington Post last week on this topic, Five Ways to Protect Your Credit in Tough Times.  Here are some of her recommendations:

• As soon as you know your income will not be adequate to pay your bills, develop a worst case plan. While I prefer to think optimistically about finances, this is the time for a conservative [Call it negative if you must.] approach. Since you may only get one opportunity to renegotiate your accounts, you want the best terms for your business and yourself.
• Examine your spending with a virtual microscope. When we are accustomed to sufficient cash flow, it can be difficult to recognize excess outflow for ourselves and our businesses. For example, if you eat out for lunch instead of taking it, habitually buy refreshments at convenience stores, make regular visits to Starbucks or the bakery or yogurt shop, and cannot resist a sale . . . there are dozens of places you can make effective spending cuts.  Find any excesses; cut them. If you’ve never had to severely scale back spending, a true shift of consciousness is required for habitual buyers. It can be difficult because you acquire a different mindset when you spend for what is needed rather than buy what is wanted.
• Share the situation with your employees. Ask for their suggestions. Enlist their help to recognize cost-cutting opportunities, which will get your business through these challenges and preserve their jobs. A team effort can produce more successful results than the efforts of the captain acting alone.
• The tough step comes after you develop a new operating budget. Call your suppliers and business creditors while all your accounts are current.   
• When you’re contacting a major company, ask to speak to a manager. After the person comes on the line, get the correct spelling of their name, ask for their title, and ask how you can reach them directly if you have follow-up questions after the call. Keep this information in your records. With small local vendors, you probably know the person you’re contacting. If not, ask for the accounting manager.  
• Explain that your business is slowing down due to the recession. Tell them you’re prepared to hunker down and make it through to better days and you’d like to enlist their help to do that. 
• If your supplier accounts have standard 30-day terms, ask to have the terms changed to 90 days until business conditions improve. You might have to compromise at 60. However, they may grant 90. If you’re able to pay invoices early, your business credit scores will increase. Having a time cushion for bills during an uncertain economy can provide stress relief while it preserves your positive credit history.  
• Major credit card accounts are likely to be more difficult to negotiate than vendor accounts with standard business payment terms because banks tend to be less accommodating, even today. With a true commercial credit card, which means you did not provide your social security number to open the account, you are more likely to get your interest rate reduced or terms relaxed than you will with an account where you’ve guaranteed it by providing your social security number. Again, talking with a manager can be key to achieving acceptable results. 
• Stop charging on credit cards except for small amounts you know you can pay in full each month. We have no idea how long this economic downturn will last. Due to the complexity and impact on foundation segments of the economy, the road to recovery is likely to be longer than we prefer to anticipate. You want as little debt as possible – in your business and personally. Don’t close accounts. Just use them minimally to keep them active on your credit reports.