Download RECESSIONS, DEPRESSIONS, DEFLATION, INFLATION

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R E C E S S I O N S , D E P R E S S I O N S , D E F L AT I O N , I N F L AT I O N
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A quick primer on the characteristics of each
ecession, depression, inflation,
deflation … these words get
kicked around quite a bit, but
many people still have only a hazy idea of
what they mean. So now, a brief look at
each term.
■ recession
A recession is confirmed by negative
gross domestic product (GDP) for two or
more successive quarters. A bear market
can precede or coincide with a recession.
Other signs include rising unemployment,
declining real estate values, and minimal
growth or contraction in business sectors.
Sometimes, other factors have played a
role – such as U.S. monetary policy, sudden increases in energy costs, and the end
or beginning of a war. In the post-World
War II era, recessions have averaged about
you also have monetary inflation - the
growth of the money supply, or the total
10 months in duration.1
■ depression
A recession that lasts for years with severe economic depths. The Great Depression was characterized by tremendous
unemployment levels (the jobless rate was
approximately 25% in 1933) and chilling
devaluation of stocks (by 1932, the Dow
Jones Industrial Average was down 89% from
pre-crash levels). The Depression also saw
widespread bank failures – roughly 9,000
U.S. thrifts failed during the 1930s, and
all U.S. banks were closed for four days
in 1933 by presidential order. When the
Depression struck, there was no FDIC,
no SEC and no unemployment insurance,
making a bad economy worse.2,3
■ inflation
Simply defined, this means rising prices.
But in addition to retail price inflation
measured by the Consumer Price Index,
amount of money in the economy. (Our
money supply includes dollars, checking and
encourage investment and hiring. Most
economists feel the U.S. has the tools - and
the aggressive central bank - to avoid deflation, despite the fact that cheap credit is
savings accounts, CDs and money market
often a condition for it. (There is also “good”
funds, and short-term transfers of securities in
deflation, where cheap productivity increases
exchange for cash.)
the quantity of consumer goods and competi-
Here is the great balancing act of the Federal Reserve. If it eases the money supply
tion drives down prices, effectively increasing
consumer wealth.)
(think lower interest rates), borrowing costs
decrease, and investment generally increases. But with easy money, price inflation and currency devaluation follow. The
Fed can fight inflation by raising rates to
effectively tighten the money supply, but
with possible byproducts of reduced consumer spending, lower corporate earnings,
and less investment.
■ deflation
The opposite of inflation: prices fall. This
is a result of reduced money supply and reduced availability of credit. If no one buys
anything, business inventories increase
as sales of consumer goods decrease, and
prices drop in response.
This is what happened in Japan in the
1990s; it also happened in America in the
1930s. As prices decline, there is little to
1 st q ua rt e r 2 0 0 9 - n ews l e t t e r
■ has this been helpful ?
The Federal Reserve and the Treasury
have their heads full of these concerns,
and the more individuals understand
them, the more they know about how
economic trends develop and how economic policy works. If you’d like to learn
more about how inflation trends, interest
rate cuts, or recessionary indicators might
affect your investments, give us a call.
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robert m. lagonegro
■ citations
1 nber.org/cycles.html [8/28/08]
2 signonsandiego.com/uniontrib/20081005/
news_lz1n5dean.html [10/5/08]
3 fdrlibrary.marist.edu/031233.html
[11/25/08]
E s t at e P l a n n i n g 1 0 1 - Pa r t 4
Revocable Living Trusts
There are three primary benefits of a Revo-
process of months or even years. However,
cable Living Trust:
Washington state has a quick probate process
and fees are one of the least expensive in the
1. Privacy.
country, reducing the advantages of this trust
2. Quick asset-transfer process.
for Washington residents.
3. Reduction of probate cost.
Some other points to keep in mind when
After establishing a Revocable Living Trust,
the grantor must re-title assets placed into
• A Revocable Living Trust is generally more
the trust. Assets such as a house, investment
complex than a will and there are additional
property, cars, bank accounts, non-IRA in-
costs.
vestment accounts, etc. may be included in
the trust. Usually, the grantor names himself
as trustee and maintains control of the assets
until death. However, a Co-Trustee or Suc-
• The necessity and expense of re-titling and
transferring assets into the trust can be burdensome.
cessor Trustee can be named to co-manage
• Administrative costs for a separate trustee
or manage the assets if the grantor is un-
may be significant over time.
able or unwilling to manage them. Detailed
instructions are included in the trust docu-
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considering a Revocable Living Trust are:
ments which specify how the assets will be
• The trustee must be trustworthy and act in
the grantor’s best interest.
evocable Living Trusts receive
managed and distributed before and after the
• Banks may hesitate to lend money secured
considerable attention when non-
grantor’s death.
by assets that are held in a trust.
Following the grantor’s death, the trustee
• Assets in a Revocable Living Trust are not
or successor trustee oversees the transfer
protected from creditors or litigation.
local attorneys present estate
planning seminars on this topic. Their primary goal is not to develop a relationship with
the attendees and customize a solution based
on their needs. One goal is to convince their
guests that everyone should have a Revocable Living Trust, and there are a few benefits. However advantages do not outweigh
certain downsides for most residents of
of assets to the beneficiaries as outlined in
the trust. Trust assets do not go through the
probate process as with a will, making the
asset-transfer process quick and private. With
• A will is still needed for assets and conditions not outlined in the trust, such as the
nomination of a guardian for minor children.
a will, probate records are available to the
• A Revocable Living Trust does not avoid
public.
income, estate or gift taxes.
Washington state. A Revocable Living Trust
In some states, probate courts charge a fee
At Haberling Financial Group, we recom-
is a legal document that partially replaces a
based on the percentage of the deceased’s net
mend you develop a relationship with an at-
will and is created during the lifetime of the
worth; this fee can be as much as five or six
torney who will make estate documentation
grantor. Similar to a will this trust is “revo-
percent. In addition, certain asset types, such
recommendations based on YOUR goals and
cable”, which means the grantor can make
as out-of-state real estate and privately held
objectives. We would be happy to assist you
changes or even eliminate it at a later date.
companies, can result in a lengthy probate
in this process.
1141 North Edison
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Suite A
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Kennewick, WA 99336
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(509) 735-7507
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steve PALM
[email protected]
Haberling Financial Group (HFG) is a financial services corporation specializing in investment management and financial planning. HFG has
been providing quality investment services since 1983, and currently manages over $170 million in assets. We specialize in providing disciplined
investment strategies and comprehensive retirement planning solutions. Our goal is to provide the highest quality investment and planning
services available. Securities offered through Pacific West Securities, member FINRA SIPC. Articles edited by Donelle Knudsen.