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Protecting the nest egg

Local experts weigh in on economy

Local experts weigh in on economy

September 29, 2008|By ERIN CUNNINGHAM

Bad investments sparked the financial problems that have spread through the U.S. economy and the situation is threatening the health of America's infrastructure, a local expert says.

Bill Anderson, associate professor of economics at Frostburg (Md.) State University, said the country's economy will have to hit rock bottom before it rebounds. The good news: It will rebound.

Anderson said he believes that about 18 months after "rock bottom," the economy will begin to experience slow growth.

During those 18 months, though, there will be some tough times, he said.

On Sunday, congressional leaders released final legislation to create a $700 billion bailout of the financial markets, according to The Associated Press.

The House plans a vote on the rescue bill today. The Senate is expected to follow later this week.

Small business

"The problem, as I see it, is primarily that the credit has tightened down to such a degree with banking institutions," said Rich Rook, chairman of the board of the Hagerstown-Washinton County Chamber of Commerce. "Until this thing sorts itself out, (there will be) a credit squeeze."

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He said that is a concern for small business owners who use loans to see them through tough economic times. Rook said times are tough now, and with a smaller client base for many businesses, fewer people shopping and eating at restaurants, business owners might be looking for loans that will not be available.

"It's more difficult to get that credit right now," Rook said.

Rook said not only small business owners will be affected by the economic crisis.

"Everyone is going to face the crunch of this to some degree," he said.

Workers are watching their 401(k) accounts shrink as the stock market fluctuates. Housing values are declining and home-equity loans have dried up.

Rook said financial consultants can offer the best advice about what to do with money in the stock market.

"It's a situation where if you pull the money out and the market rebounds, you've lost the opportunity to have money invested," he said. "In some ways, if you have cash, now is a good time to invest."

Rook, who noted he is not a financial consultant, said that in cases of uncertainty, having patience with the market is a good thing.

Banking

However, Rook said people should not worry about the security of the money they have in banks. That money is insured by the Federal Deposit Insurance Corp. (FDIC).

"Local banks are very solvent," he said. "The worst thing would be to create a run on the bank. That's the last thing you'd want to see."

The FDIC is a government corporation that provides insurance, guaranteeing the security of money in checking and savings accounts in member banks, up to a certain amount. That amount is now at $100,000.

FDIC spokesman Andrew Gray said the number of hits on the FDIC Web site at www.fdic.gov has increased recently due to economic uncertainty. In response to that increased interest, the FDIC has launched a national campaign to help consumers learn about the benefits and limitations of deposit insurance.

"For 75 years, no one has ever lost a penny of insured deposits," FDIC Chairman Sheila Bair said in a press release. "But as with any type of insurance, depositors are responsible for knowing how FDIC coverage works in order to ensure their money is protected."

Generally, all money up to $100,000 for an individual account is protected through the FDIC, Gray said. In the case of a joint account, the protected amount is $100,000 per person. Typically, retirement accounts are protected up to $250,000.

"And there's ways to get even more coverage," Gray said.

The FDIC's public awareness campaign includes encouraging Americans to visit myFDIC insurance.gov, where they can use EDIE the Estimator, an online tool that provides customized information about their insured accounts. Those without online access can call 1-877-ASK-FDIC for assistance.

"The core message is that even if your bank is in trouble and you're worried, if you're under deposit insurance coverage limits, you're fully protected," Gray said. "You have nothing to worry about. You can rest easy at night."

Local economy

While the national and global economies are facing an uncertain situation, Rook said Washington County has continued to see growth and job creation.

Maryland's Secretary of Business and Economic Development David W. Edgerley said during a local conference Thursday that for the most part, Maryland has not been affected by the national crisis. He said the state economy is stable, if not growing.

Rook said he expects the equity people have put into their homes will be affected by the current economic meltdown.

"The problem is that people have borrowed money against their homes in the past and the rates have now changed, and they can no longer afford their properties."

Rook said he believes those with good credit still will be able to borrow money from banks and said banks are still looking for good investments.

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