(futureatlas.com)

Mobile banking has been a blessing to anyone who values quick, painless money management. Here in the United States, the ability to check account balances and transfer money via mobile phone has reduced the need to bank at physical branches (never a fun task), or even sit in front of a computer. However, in emerging economies, mobile banking means something far more profound. While mobile banking is chiefly a matter of convenience in the developed world, for emerging economies it is increasingly the difference between banking or not banking at all. In our previous article on the future of mobile finance, Mint discovered that 36% of the people in India, for instance, “…earn less than Rs 5,000 a month [and] own a mobile phone, but do not have a bank account.”

Similar situations are found in other developing markets. TMCNet predicted in November 2008 that “…will grow at nearly 7 percent annually through 2013 and will exceed $200 billion by that time” and furthermore that “…the growth will be driven by emerging markets in nations such as Brazil, Russia, India and China, and on the continent of Africa.” Indeed, TMCNet continues, “…collectively, emerging markets will compose about 60 percent of the market share in 2013.” Gavin Krugel, director of mobile banking strategy at the GSM Association, goes a step further, claiming that, “…one billion consumers in the world have a mobile phone but no access to a bank account.” What is lacking in these countries are not mobile phones, but – until recently – mobile banking technology tailored to their unique needs and circumstances. Luckily, the mobile banking scene in developing markets is rapidly beginning to take shape.

Today, we’ll take a closer look at what mobile banking (in its advancing state) means for the developed world, both in the short term and down the road.

Helping The Poor

(whiteafrican)

One promising aspects of mobile banking is its potential to help the poor in developing nations. As noted earlier, the impoverished state of many of these nations is such that the average citizen has little or no access to real banking services. India, with its 36% of citizens earning less than Rs 5,000 a month and lacking a bank account, offers one example, but it is hardly the only example. GlobalEnvision.com cites The Consultative Group to Assist the Poor, which estimates that, “…80 percent of people in least developed countries are unbanked.” The Jakarta Globe makes mention of people in, “…rural and remote areas” of Afghanistan, Asia and Africa who can now “…get paid, send remittances or settle their bills” using mobile banking technology.

Thanks to such services, it has never been easier for citizens of an impoverished nation to receive money from friends or relatives in developed countries (which are often frequent transactions among these parties.) Even bill paying has long been cumbersome chore in many emerging markets. While those in the U.S. can pay with one click of a mouse (or even one tap on an iPhone screen), the Jakarta Globe reports a far more involved process in parts of Africa, where Fundamo regional executive Reg Stewart says, “…it takes one day to pay one bill” because Africans must, “…physically go to the bank, then you must queue, a long queue.”

Similar stories abound in just about every emerging market one can name. Simple money management tasks that are routinely taken for granted in the developed world often require painstaking effort elsewhere. Needless to say, such burdens make it difficult for the poor to participate in the economy or improve their own prospects in any meaningful way. Mobile banking technology has the potential to be trans-formative in this regard by expanding the sphere of opportunity of anyone who uses it.

Stronger Economic Growth

(woodleywonderworks)

The spread of mobile banking in developing countries has the potential to be the proverbial rising tide that lifts all boats. GlobalEnvision goes on to quote Jeremy Leach of FinMark Trust, who claims, “…what we’re finding from the evidence from economists is that actually greater access to financial services improves economic growth.” Nor is it at all difficult to understand why this would be so. It only stands to reason that when thousands (indeed, sometimes millions) of a nation’s citizens can only participate in the economy with physical currency, it will be difficult for the broader economy of that nation to grow with any regularity. In fact, this is a central focus of Hernando de Soto’s eye-opening book The Mystery of Capital.

The main reason, “…why capitalism triumphs in the west and fails everywhere else”, according to de Soto, is not corruption, insufficient compassion from developed countries or lack of entrepreneurship in developing ones. Far from it, as de Soto observes “…the inhabitants of these countries possess talent, enthusiasm and an astonishing ability to wring a profit out of practically nothing.” Astonishingly, de Soto states, “…if the U.S. hiked its foreign aid budget to the level recommended by the U.N. – 0.7% of national income – it would take more than 150 years to transfer to the world’s poor resources equal to those they already possess.” Rather, the missing link in many developing lands is a clearly defined property rights system and financial infrastructure. Lacking such a system, individuals cannot easily get loans by pledging their homes as collateral, for instance (since their ownership and creditworthiness are not officially recorded.) They are therefore left to rely on less advantageous sources of borrowing or, more often, simply not borrowing at all.

While mobile banking alone cannot create the, “…formal, unified property system” de Soto argues is essential to lasting prosperity, it is a bold step in the right direction. As ForeignPolicy.com explains, “…now, anyone with access to a cell phone has a place to keep his or her savings without needing a traditional bank account.” If a nation’s citizens can receive payments from remote senders, take out loans, and build a credit history using little more than the mobile phones they already have, there will be far less standing in the way of their playing larger economic roles.

Reduced Corruption

(futureatlas.com)

While corruption is not the sole cause of poverty in emerging markets, it is undoubtedly a large one. Interestingly, however, mobile banking has already displayed its potential to reduce corruption in the nations that adopt its use. The Jakarta Globe relayed a hopeful anecdote from Afghanistan, whose national police are paying its officers using services from Roshan as part of a test to limit corruption. It works as follows. Every month, Jakarta Globe reports, “…officers receive a text message in the language they prefer informing them that they have received their salaries.” Because, “…a lot of them are illiterate and cannot read”, voice mail alerts are also dispensed containing the same information. Once a text or voice confirmation has been received, officers are then able to collect their pay from an authorized Roshan agent. But the benefit is not simply, as Jakarta Globe says, “…that police officers don’t have to carry cash anymore” and can now “…send their money home, buy items, and take hwatever cash they want from an agent, or to store for the future.”

What the Roshan system has done is help ensure that officers who were being scammed out of their full salary get all the money they were promised. According to Zahir Jhoja (Roshan’s head of mobile commerce), corruption in officer pay was substantial and widespread, with many officers reporting being “…very surprised that they earn so much money.” Prior to Roshan, when payments were made in cash and nothing was documented, the very same officers, “…were receiving 25 to 30 percent less” every week, according to Jhoja.

The implications are clear. Much of the corruption in the developing world persists because of manual payment processes run by corrupt people. Such a system opens the door to bribery and all manner of dishonesty and fraud. Automated mobile systems like Roshan’s, however, offer streamlining that makes it more difficult for unscrupulous individuals to game the system.

Recap

To recap, we have learned that mobile banking has much to offer the world’s emerging markets. Chiefly, the ability to tie a bank account, investment portfolio or credit report to a mobile phone empowers poor people (many of whom have never participated in a formal banking system.) Consequently, these people are better positioned than ever before to increase their standards of living via easier access to debt financing and other financial services. Finally, mobile banking is displaying the early potential to discourage certain types of corruption that are rampant in developing nations. All told, there is much to look forward to with respect to mobile banking technology in the world’s emerging markets.

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(exfordy)

Once destined for stagnation and communistic despair, China has produced truly breathtaking economic growth over the last several decades. Indeed, it is difficult to exaggerate just how much – and how quickly – the Chinese economy has grown. At a time when most major economies are struggling to catch their breath amidst a recession, Bloomberg warned on January 11, 2010 that China risked “overheating” with forecasted 2010 growth rates as high as 16%. Many eyes widened when China embarked on a massive stimulus spending spree (4 trillion yuan, according to BBC) to offset slumping imports, but in December of 2009, Bloomberg says that, “…China’s exports grew 17.7 percent from a year earlier.” However, the story of China’s ascension as an economic powerhouse began long before the current financial crisis, or even the decade of the 2000’s. In his book Applied Economics, Thomas Sowell writes that, “…as of 1991, India and China had very similar output per capita.” Nevertheless, just a decade later, “…China’s output per capita was double that of India’s.”

Nor did China merely grow relative to its neighboring nations, as China now boasts the second highest GDP in the world (as measured by purchasing power.) The primary driving force behind this historic explosion of economic growth, Sowell observes, was a radical shift in economic policy – specifically, “…a process of moving away from a government-run economy to more of a market economy.” Time Magazine concurs that China, “…only started growing when the overbearing government got out of the way and allowed private enterprise, both Chinese and foreign, to thrive.” The lifting of government restrictions on international trade and foreign investment have transformed the Chinese economy to a degree representing a night and day difference between today and just twenty years ago. Today, China is the world’s second largest economy – a meteoric rise for a country whose population of 1.3 billion was not long ago doomed to starvation.

In continuation of our series on growing economies, we’ll break down China’s economic landscape – the opportunities, government incentives to producers, fast-growing industries, and what the future holds.

The Opportunities

Much of China’s economic expansion has been the result of inexpensive exports, which are happily consumed by the rest of the world. And a significant portion of this activity has involved trade with the United States. USAChina.org displays a table showing that US imports of Chinese goods has risen every year during the last decade – beginning at $81.8 billion in 1999 and ending at $337.8 billion in 2009. While Chinese imports of US goods have also risen year to year during the same time, the increase is far less pronounced: $13.1 billion in 1999 versus $71.5 billion in 2008. Staggering as Chinese exports to the US are in isolation, the US is hardly the only source of demand for Chinese goods. Exports to the entire world rose from $194.9 billion in 1999 to over $1.4 trillion by 2008. USAChina.org also broke down the goods most frequently exported by China in 2008 – to the entire world – as follows:

1. Electrical machinery & equipment ($342 billion)
2. Power generation equipment ($268.6 billion)
3. Apparel ($113 billion)
4. Iron & Steel ($101.8 billion)

(myuibe)

Such numbers indicate opportunities in each of these industries, which benefit from tremendous and growing demand from the rest of the world – especially the United States. Various investors also spot growth opportunities on the Chinese stock markets. Foremost among these is Warren Buffet, who Motley Fool quoted in 2008 as saying:

“The 19th century belonged to England, the 20th century belonged to the U.S., and the 21st century belongs to China. Invest accordingly.”

As far back as 2006, AIGA.com remarked on the branding opportunities available in China now that the government there has become more permissive of foreign investment. Citing a massive influx of foreign activity after China joined the World Trade Organization in 2001, AIGA comments on a report by Bernstein Investment Research & Management stating, “…China will produce world-class brands and they will challenge incumbents in China, and around the world.” Bernstein also discussed a broader “…impetus to position Western brands within China itself.” Sure enough, American and European franchises have found that their products and services, “…are especially appealing to younger Chinese”, while, “…older Chinese consumers are fiercely patriotic, and want to buy native brands.”

Another growth area appears to be precious metals, which NuwireInvestor.com claims are needed to support China’s continued growth. For instance, China, “…has been by far the largest importer of platinum and palladium over the past 12 months”, as of October 2009. ChinaMining.org likewise quoted Christopher Parker of Brook Hunt as saying, “…like it or not, China has truly become the most major force in the world of zinc.”

The Incentives to Producers

The greatest incentives to Chinese producers (domestic and foreign) have been the general trend of government easing up on various trade and investment restrictions, which limited that country’s growth for many years. Back in 2006, IncentiveMag.com dubbed that year, “…the year of the carrot” because of the various incentives that were made available for doing business domestically. While China was once seen, “…first as a source of cheap labor”, foreign businesses see China, “…increasingly now as a viable market in its own right.” Although China once consisted, “…merely of big multinationals and cheap outsourcing”, smaller US companies, for instance, “…have begun to set up shop” because of reduced complexity, bureaucracy and startup costs.

(cogdogblog)

Various industries have been targeted specifically with unique incentives of their own. The auto industry is a recent example. In December 2009, the Wall Street Journal reported that that Chinese government would be, “…extending a purchase tax cut on smaller passenger vehicles”, as well as, “…expanding subsidies for alternative fuel vehicles, purchases in rural areas and for consumers trading in older cars.” On top of that, the government, “…halved the sales tax on vehicles with 1.6 liter engines or less” to 5% – a move that the Journal suspects helped put the Chinese auto market, “…on track to surpass the US” in 2009 in terms of higher auto sales volume. ChinaInvestor.com reported in October 2009 that China had launched a portfolio of incentives aimed at increasing solar energy production. Specifically, the Chinese government is offering to, “…subsidize the costs of installing solar energy systems on buildings.”Another proposal calls for the government to offer “…up to 20 RMB ($2.93) per watt for solar-panel installations that are 50-kilowatt or larger”, which could pay for, “…50%-60% of a system’s installation cost.” Still another program (called “the Golden Sun”) involves the government paying half the cost of building, “…grid-connected solar projects, and up to 70% for off-grid projects in remote areas.”

More broadly, Chinese companies benefit from paying a flat corporate tax rate of just 15%. By comparison, the U.S. assesses corporate income taxes of anywhere from 15%-35% on C Corporations, depending on the income earned.

The Future

In addition to its frenetically paced growth, China’s economic fundamentals appear strong. The 2009 Legatum Prosperity Index states that, “…unemployment in China is at 4%, and this, coupled with a relatively low inflation rate of only 5%, inspires reasonable confidence in the economy.” Also, despite China’s rapid and continuing growth, the country’s domestic savings rate is the, “…third highest globally”, at 53% of GDP. Additionally, China has produced double-digit GDP growth in each of the past ten years. China ended 2009 on a high note, with the UK’s Times Online noting that the country’s GDP rose, “…by 10.7 per cent in the fourth quarter compared with the final three months of 2008.” While the Times cautioned that China is still burdened by its growing population, it appears as though world markets are rapidly absorbing Chinese labor for increasingly productive and profitable uses. In a similar vein, BusinessWeek stated on January 22, 2010 that retail sales rose over 16% last year (after adjusting for consumer price changes) – the largest such rise since 1986 – which prompted BusinessWeek to conclude ,”…the world may again this year count on China as the biggest engine of growth.”

Got credit card debt? If so, good news: the card issuer can no longer hike your interest rate without warning or raise rates on an existing balance. They have to send your bill at least 21 days before it’s due (up from 14 days). And each bill has to show how long it will take to pay off the balance if you make the minimum payment–and how much you’ll pay in interest if you do that. Call it the credit card equivalent of the Surgeon General’s warning.

These reforms–and many others–are due to a single new law, the Credit CARD Act, which came into effect last month. Great! Who hasn’t been surprised by one or more of these practices?

“This new law is good, and it does stop a lot of bad things,” says Kathleen Day of the Center for Responsible Lending, a consumer watchdog group which published a handy guide to the new law. “But it doesn’t stop everything, and you know they’re going to find new ways around it.”

Why do the card issuers play these games? It’s not because they’re jerks and like watching you suffer. (That’s a side benefit.) They do it to make money. Take away these revenue streams, and the card companies aren’t going to roll over. Right now they’re rubbing their hands together and coming up with new schemes.

Let’s be like the writers on 24 who sit around coming up with hypothetical terrorist attacks, and figure out what the credit card issuers are going do next.

A crackdown on deadbeats

A deadbeat dad is one who never pays his child support on time. But to a credit card issuer, a deadbeat is just the opposite: a customer who always pays on time and therefore never pays any interest.

Interest is the single biggest chunk of credit card profits. The card issuers have always done their best to turn deadbeats into debtors. Got a pesky customer who always pays on time? Make sure their bill arrives a few days before it’s due, then, when they pay late, slap a 30 percent penalty APR on their entire balance.

The CARD Act makes it harder to pull this maneuver off: they have to send you the bill earlier, and you have to be 60 days late before they can jack your APR. But you can still blow it the old-fashioned way: occasionally pay less than the balance due.

“The house is making a bet that you will not live up to your intentions,” says Chris Farrell, author of The New Frugality and economics editor at American Public Media’s weekly radio show Marketplace Money. “If you will pay it off at the end of the month, and you can pay it off at the end of the month, and you actually have that discipline, it’s a really good deal. The strategy doesn’t work if it turns out you do it every other month.”

If you do show steely discipline and pay in full consistently, the card issuer is now likely to reward you by lowering your credit limit or canceling your account. Happy trails.

Here, have some rewards

That’s not to say that reward cards are going away. In order to explain why credit card issuers love reward cards, I have to use a term that will make many of you close your browser in disgust. It’s not dirty, it’s boring: interchange fees. Although, when you think about it, it does sound kind of dirty.

When you swipe your card for a $100 purchase at Urban Outfitters, the store doesn’t receive the full amount. A few pennies go to Visa (or MasterCard or Amex). A much larger chunk, 1 to 3 percent, goes to the bank that issued the credit card. This is the interchange fee.

The interchange fee isn’t the same on all transactions. It depends on a lot of factors, one of which is whether you’re using a reward card: reward cards carry higher interchange fees.

So, thanks to the CARD Act, you’ll be receiving more junk mail advertising reward cards (especially if you have a high FICO score). They’re a great deal for the banks: higher interchange fees; reward cardholders charge more than the average person, to maximize the reward; and a significant percent of the rewards go unredeemed. Got some useless air miles sitting around? Join the zero-mile-high club.

Oh, they’ll surely be hiking interchange fees, too. And since merchants aren’t allowed to charge customers extra for using a credit card, everyone will pay more–even cash customers.

Fees, fees, fees

“People are going to see many more fees,” says Kathleen Day. Here are a few favorites:

• Annual fees. The classic, and more popular than ever–especially for cardholders with low FICO scores.
• Inactivity fees. Some banks charge you an annual fee for not using your card or not using it enough. Damned if you do, et cetera.
• International exchange fees. As the New York Times reports, card companies charge up to 3 percent every time you make an international purchase–even if the purchase is in US dollars.

Payday…for the banks

Subprime mortgages are over. Credit card profits are down, thanks to debt-wary consumers and new laws. Even overdraft fees, a bank’s bread and butter, will be curtailed later this year. What’s a poor bank to do?

How about payday lending? As BusinessWeek reports:

Banks including Cincinnati-based Fifth Third Bancorp, San Francisco-based Wells Fargo & Co., the fourth-largest U.S. bank, and U.S. Bancorp, based in Minneapolis, are already making such loans, usually from $100 to $500, at annual rates of 120 percent if repaid in 30 days. They’re known as “checking advance products.” That puts them in competition with so-called payday loan stores.

Lovely.

Opt out

In short, the CARD Act is good news, but credit card issuers still want to stick their hands far enough into your pockets to untie your shoes. What to do?

“Reward companies that provide a good service at a good price, and don’t do business with the ones who don’t,” says Farrell. “I hope credit unions and community development banks, which offer credit card products that are pretty simple and straightforward, take market share away” from the big banks. My credit union offers a simple, no-fee credit card at a competitive rate, but I don’t actually carry it. I did, however, sign up for their overdraft line of credit. If I ever were to need emergency cash–up to $1000–I can dip into the line of credit at a fixed 8.9 percent APR using my debit card. There’s no additional overdraft charge. (I’ve never used it.) The watchword with credit cards is the same as it ever was: check your statement for surprises and your back for knives.

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(Aaron Escobar ♦ (the spaniard)™)

For much of its history, offshore banking has been seen first and foremost as an avoidance maneuver. Countless action and mystery movies depict Swiss bank accounts as places for villains to hide ill-gotten fortunes. Indeed, one need not rely on movies for evidence of offshore banks housing shady activities. Offshore bank accounts have been used to hide the profits for everything from drug sales to arms dealing to bribes – not to mention tax evasion schemes. But today, offshore banking is much more than a haven for underhanded financial shell games. Increasingly, legitimate businesses and individuals are finding it more advantageous than ever to utilize offshore banks for the privacy, flexibility and accessibility that they offer. With identity theft and bogus lawsuits as prevalent as ever, it’s plain to see why people take comfort in storing assets overseas – especially in countries where banks pride themselves on being loyal to customers first, and governments second. Swiss banks, for instance, are famous for refusing to cooperate with all but the most serious and unavoidable of government snooping. Such secrecy protects not just devious crooks, but innocent citizens with legitimate reasons to keep prying eyes out of their finances.

Today, we’ll take a deeper look at offshore banking – including its key advantages, what it offers to different types of people and several nations known for protecting the assets and identities of their foreign depositors.

Privacy

(Anonymous9000)

Arguably most compelling benefit of offshore banking is, and always has been, privacy. The advantages of bank account privacy to criminals are too obvious to require elaboration here. However, privacy also has its advantages to completely honest, fair-dealing people and businesses. For one thing, the United States is currently the most litigious society that has ever existed. Sixwise.com cites a study from the Economic Journal showing that, “…Americans spend more on civil litigation than any other industrialized country.” The American Bar Association reported in 2006 that, “…there are over 1 million lawyers in the United States” – more per capita than any other country. Nor are all of those lawyers sitting around idly in their offices, as Sixwise states that the number of civil suits filed increased by 12% from 1993-2002 alone. Frivolous lawsuits are a big part of the problem and, “…are said to cost the United States $200 billion a year, according to Congressman Terry Everett.” Unlike in many European countries, the losers of American civil suits are not generally required to pay the winner’s legal fees. Within that kind of legal climate, simply possessing significant assets can be enough to make you the target of a lawsuit. Given such overwhelming incentives to sue, high net worth individuals often find it to their benefit to conceal some or all of their assets overseas. While it is relatively simple for lawyers to run asset checks on bank accounts residing in the United States, many offshore banks are far less transparent.

Despite a recent agreement to cooperate with US tax authorities, Swiss banks are still quite secretive. A recent BusinessWeek story reveals that while Swiss banks cooperate with investigations of tax fraud (a criminal matter), they will not turn over documents or the identities of account holders for civil matters (private lawsuits.) It’s tough to beat that kind of privacy when it comes to shielding assets from frivolous lawyers and lawsuits. Such people will not even know that you have an account, much less whether or how much money is inside.

Flexibility

(cliff1066™)

Another attractive benefit of offshore banking is the flexibility that it can offer. This is particularly true for traveling or international businesspeople, many of whom come to find it difficult or costly to run an international operation from a domestic, neighborhood bank account. Accepting payments in foreign currencies, for instance, often triggers hefty fees when those payments are received into American bank accounts. If you or your business regularly transacts in one or a handful of foreign countries, it quickly makes sense to simply set up accounts in those countries, rather than incurring fees by redundantly shuttling money overseas and back again. Best of all, it is usually not even necessary to visit the country in which you wish to set up the account. Belize.com, a website set up to attract customers to Belize’s offshore banks, states that, “…you can simply bank from wherever in the world you live, via a secure Internet connection, secure e-mail, post or telephone.” Many offshore banks in Belize even provide ATM cards that can be used in your home country. To its credit, Belize also promises ,”…near hermetic confidentiality” to its offshore banking clients. Additionally, many offshore banks provide 24 hour call centers whose operatives speak your native language and are available to you regardless of time zone differences. Clearly, flexibility is a compelling reason to bank offshore.

Hedging Against Political Risk

(srqpix)

A somewhat overlooked advantage to offshore banking is the partial hedge it provides against political risk. As Offshore-Fox.com wisely points out, “…assets held domestically are subject to political and social risks that you cannot control.” These risks are broad and innumerable in possibilities, including the risk that your government, “…may suddenly raise taxes to fund a failing economic experiment.” Recently, the federal government has taken a larger authoritative role in the banking and financial sector than at any time in US history. While it isn’t certain that their actions will adversely affect your domestic bank holdings, the risk is unquestionably there. Inflation is another looming danger with the potential to eat away at domestically held bank assets. In his article on inflation, John T. Reed recalls that, “…President Roosevelt issued Executive Order 6102 that required all Americans to turn in gold to the Federal Reserve bank for $20.67 per ounce—a below-market price—by 5/31/33.” Failure to comply with Roosevelt’s order resulted in, “…a fine of $164,000 in today’s dollars and/or a prison sentence.”

There have also been laws such as Regulation Q, which was instituted in 1933 to limit the interest rates that US banks could pay their depositors. The current financial crisis, again, has triggered massive new interventions into private finance whose implications (good or bad) for domestic depositors are not yet clear. It is easy to shrug off such risks as remote possibilities that seem unlikely to ever occur. However, when hundreds of thousands (or even millions) of dollars are at stake, high net worth individuals often prefer to hedge against political risk when doing so is cost-effective. Offshore banking is one of several ways to do that with respect to their assets. Indeed, QWealthReport.com’s article on myths about offshore banking reports that, “…most people who bank offshore these days are not evading taxes” – as is commonly assumed – but are instead seeking, “…protection against political risk factors”, among other things.

Recap

Essentially, the most compelling advantages of offshore banking are privacy, flexibility, and protection from political risk. Conservative or high net worth individuals can often keep assets under the radar of frivolous lawyers by storing them in offshore accounts. Businesspeople with nothing whatsoever to hide can nonetheless benefit from the tremendous flexibility and cost savings (in eliminated fees) that banking overseas can offer. Finally, citizens from all walks of life can utilize offshore banking as a partial hedge against political and social uncertainty by ensuring that at least the money they keep overseas will not be harmed by adverse laws or regulations. To be sure, offshore banking has come a long way from being the sole province of criminals and con-men.

(tenaciousme)

A statement we frequently hear from economic analysts is that America needs a “strong dollar.” And most of the time, the non-economically savvy segment of the population blankly nods in agreement. Lacking a deep understanding of why a strong dollar is beneficial (or even what a strong dollar means), most people nevertheless prefer a strong dollar to a weak one. However, the words “strong” and “weak” are the source of much confusion on this issue. In virtually every other area of life, strength is categorically, universally preferred to weakness. Using such language to describe fluctuations in the value of a currency invests emotional meaning into the situation, implying that a strong dollar is always preferable. In fact, the strong dollar/weak dollar debate is more complicated than it initially seems to be. Most experts, for instance, agree that a strong dollar (as commonly defined) is better in a normal, prosperous economy. Yet the very same experts – with data and convincing arguments – contend that a “weak” dollar can actually accelerate recovery from a recession, such as the one we find ourselves in today. Naturally, both of these positions require a firm grasp of both what a strong and weak dollar actually means, and why each of them lead to different outcomes depending on the state of the economy.

Today, we’ll address the strong dollar/weak dollar debate into perspective and explain what each of them means for you.

Strong & Weak Dollars Defined

For those who are not already aware, let’s define what a strong dollar actually means. Very simply, a strong dollar is one that, “…can be increased for a large or growing amount of foreign currency”, according to InvestorWords.com. Typically, a strong dollar is seen as a good thing because it means American citizens and businesses can get more foreign goods and services for the same amount of money. An American citizen could bring $1,000 to France, for example, and buy more there than she could here. This matters because imports are usually paid for in the currency of the country doing the importing. Consequently, America as a whole tends to import far more goods and services than it exports for however long the dollar is stronger than the currencies of the nations we trade with.

(Photos8.com)

A weak dollar, as you may have gathered, is one that, “…can be exchanged for only a small or decreasing amount of foreign currency.” A weak dollar is usually seen as a bad thing because it does not stretch as far internationally as it once did. Indeed, the opposite is true: foreign currencies buy more of our goods and services than we can buy of theirs. But while imports are usually purchased using the importing nation’s currency, exports are paid for in the currencies of the exporting country. Therefore, a weak dollar has the ability to change the entire flow of trade that occurs when the dollar is strong. When the dollar is weak, America as a whole tends to export more goods and services than it imports.

Why They Matter to You

From the above discussion, it may look like a strong dollar is always most desirable. But as we alluded to earlier, many experts disagree with that conclusion. A case in point is Bob McTeer of DailyMarkets.com. “If I had to choose with no qualifications”, McTeer writes, “…I’d choose the strong dollar.” Among his reasons are the fact that a strong dollar “…benefits consumers by holding down the price of imports and keeps the pressure on producers and exporters to keep costs down and productivity up.” McTeer also wisely points out that a strong dollar attracts foreign investment more readily. In the long term, he concludes, “…a strong dollar is good for our standard of living.” During a recession, however, McTeer’s analysis changes.

While a naturally stronger dollar (that is, a dollar whose value rises because demand for American imports rises) is still beneficial, a dollar made stronger by political fiat and interference can actually slow an economic recovery by, “…reducing demand for our exports relative to our demand for imports.” The consequences are potentially disastrous as far as recovery is concerned. The deficit of trade that results from our artificially strong dollar can “…divert demand to our trading partners”, thereby diminishing demand for American products and services at a time when that is, by definition, the very thing we need for a true recovery. Of course, McTeer concedes that being in favor of a “weak” dollar (even within certain tightly circumscribed conditions and circumstances), “…still doesn’t seem right” to many observers. To think about the issue and the forces at work more clearly, he suggests substituting the word “competitive” for “weak”, which eliminates the negative emotional connotation.

(kevindooley)

MSNBC also reported in February 2010 that a resurgent US dollar could be, “…the latest threat to recovery” from the current recession. While the dollar, “…surged to an 8-month high against the euro, and is also rising against other major currencies”, that could actually, “…hurt exports, which are big contributors to the US economy right now.”As a direct result, American businesses will pay more to sell their products overseas while, “…imports here will be cheaper – good for consumers, but bad for businesses.” The Peterson Institute for International Economics (a nonpartisan research group) breaks it down even more specifically. For every 1% increase in the value of the dollar – averaged against major foreign currencies – US exports are reduced by, “…about $20 billion annually”, which, “…destroys some 150,000 jobs.” Like Bob Mcteer, MSNBC agrees that supporting a weak (or competitive) dollar may not intuitively feel right, but that during a recession, stronger does not necessarily mean better.

The Takeaway

To recap, we have learned that “strong” and “weak” dollars are not categorically good or bad for America as a whole. Certain segments of the economy are hurt or helped by either, depending on whether we are in a recession or not. Furthermore, during recessions, a strong case can be made that a “weak” dollar provides a needed boost to the sagging economy by promoting increased exports of our goods to other countries. Largely, the words “strong” and “weak” obscure the deeper meaning of the issue, which is whether (and when) it is better for our currency to be worth more or less than foreign currencies.

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Though the income gap in the United States has slowly decreased over the last few decades, there still remains a significant disparity in income between genders and across races. The earnings of Black women are much closer to the US average than those of their male counterparts, and the trend is similar for those of Hispanic descent. It is also notable that on average, Asian females earn more than both Black and Hispanic males, while Asian males have the highest income among all groups. </p> <p><a href="http://www.mint.com/blog/wp-content/uploads/2010/02/MNT-INCOME-DISPARITY-R4.png"><img src="http://www.mint.com/blog/wp-content/uploads/2010/02/MNT-INCOME-DISPARITY-R4.png" alt="MNT-INCOME-DISPARITY-R4" title="MNT-INCOME-DISPARITY-R4" width="900" height="786" class="alignnone size-full wp-image-8737" /></a><br /><a href="http://www.mint.com/">personal finance software</a> – Mint.com

The government will tell you that we are coming out of recession and economic recovery is right around the corner. Since the mortgage meltdown could be considered the root cause of the economic downturn, it’s helpful to look at the current housing market to get a sense of whether the recovery is hitting close to home. As prices have continued to drop in cities across the nation, the number of home sales has been increasing in many areas. Especially profound was the dramatic percentage increase year-over-year between Q3 and Q4 in total properties sold. Our latest map may not be able to tell you when to buy and when to sell but it will give you some strong data with which to make an informed decision.

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<a href="http://www.mint.com/blog/wp-content/uploads/2010/02/MNT-HOME-SALES-R6.png"><img src="http://www.mint.com/blog/wp-content/uploads/2010/02/MNT-HOME-SALES-R6.png" alt="MNT-HOME-SALES-R6" title="MNT-HOME-SALES-R6" width="918" height="1726" class="alignnone size-full wp-image-8702" /></a><br /><a href="http://www.mint.com/">Budgeting</a> – Mint.com

(DiegoSaurius Rex)

Long known as a hotbed of corruption and secrecy, Chile has emerged from the shadows as a legitimate player in the world economy. On January 11, 2010, Chile became the first South American country to join the Organization for Economic Cooperation and Development. OCED’s press release cites Chile’s “…nearly two decades of democratic reform and sound economic policies” as justification for its historic membership. To put it in perspective, Chile is only the seventh country to be admitted to OCED in the last thirty years. It was the culmination of a years-long effort by Chile to demonstrate to the world that it was serious about becoming fairer and more transparent. Since talks between OCED and Chile began in May 2007, Chile has aggressively enacted, “…new laws to end the banking secrecy that provides a shield for possible tax evasion”, while simultaneously allowing prosecutors to investigate and punish companies suspected of bribing foreign officials (a notorious problem in Chile.) Going back even further, the Chilean economy has quietly produced 5% annual growth for the last twenty years, and its, “…groundbreaking pension reforms in the early 1980s have served as a model for many other countries.” OCED also reported the passage of new legislation establishing, “…a clear separation” between the national government and copper mining giant Codelco. No longer do Chilean government ministers sit on Codelco’s board or interfere with its day to day affairs. Consumer protection and competition laws, likewise, “…have been strengthened.” Furthermore, the BBC reports that poverty in Chile has dropped faster than any other nation in the region – 39% of the population twenty years ago to just 14% today. In terms of per-capita income, Chileans enjoy one of the highest standards of living in Latin America. Clearly, Chile has taken the next step in forging an economic identity for itself.

Today, we’ll continue in our series on growing economies by analyzing Chile’s economic landscape – the opportunities, government incentives to producers, fastest-growing industries, and what the future holds.

The Opportunities

In its video covering Chile’s admission into OCED, the BBC confirms that roughly half of Chile’s revenues come from the sale of copper. In fact, Chile alone is responsible for producing one-third of all the copper in the world. So long as China and India continue buying copper to under gird their own expansions, Chile will continue to prosper from specializing in copper production. However, relying so heavily on the sales of a single commodity is dangerous to the economic vitality of a growing country. Fortunately, several other Chilean industries are reporting growth in recent years. At the forefront of these has been tourism. MicroPress.com reported on January 28th the signing of a new law designed to, “…change the face of Chile’s tourist industry by setting standards for operators and guides.” Recognizing tourism as, “…one of the biggest growth industries”, Chilean Economy Minister Hugo Lavados promised that, “…the new law will make 2010 an important year for tourism in Chile.” In 2009, Chile’s tourism industry “…generated nearly 10 billion USD (about 3.5% of Chile’s GDP) and employed an estimated 200,000 people.” ReportLinker.com adds that “…Chile is, along with Mexico, the country with the best tourism outlook for this year, according to the Association of Asian Pacific Travel (PATA).” Following the passage of the new law, Chilean tour operators will be classified and certified by the government as offering safe services to their customers.

(Andrew®)

Chile has also emerged as a major supplier of fruit to the world market. ChinaDaily.com reported in 2009 that Chilean fruit exports to China, “…grew by 68 percent in 2008 compared with 2007, to US$96 million.” Grapes comprised 46% of these exports, while apples accounted for 21%, cherries for 20% and plums for 10%, according to Chilean Agriculture Minister Marigen Hornkohl. While it has historically been difficult for Chile to enter the Asian markets, “…due to cultural differences and geographical distance”, a Free Trade Agreement signed in 2005 has, “…significantly promoted bilateral commercial exchanges” between the two countries ever since. Hornkohl adds that Chile has strive to, “…innovate packing and maritime transportation technologies” to ensure that its fruit exports arrive in good, edible condition. Blueberry production, specifically, is a major growth center in Chile. LatinAmerica-Markets.com writes that Chile is, “…the world’s third largest blueberry producer and is by far the biggest grower in the southern hemisphere”, with the United States importing the most Chilean blueberries per year.

The Incentives to Producers

Economic opportunity in general has been widely expanded in Chile during the last several decades. ReportLinker.com states that Chile’s business environment, “…is the most accommodating in the region, and the government continues to place attracting foreign investment high on its priority list.” The Legatum Prosperity Index reveals that barriers to entry (that is, the number of procedures necessary to start a new business) are “…near the global average with nine formal procedures in place.” Nevertheless, “…more than 25,000 new businesses registered in 2007″, indicating an increasingly frictionless startup climate despite the average number of procedures required.

(pink.polka)

Chile has also begun an aggressive campaign to attract technology entrepreneurs. TechCrunch’s Vivek Wadhwa remarked in 2009 that he was, “…impressed with [Chile's] ability to grow outsourcing from nothing to close to $1 billion in revenue over a mere seven years.” The incentives being offered to tech entrepreneurs are considerable. In exchange for agreeing to invest $500,000 over five years, the Chilean government will grant you a visa allowing you to stay for as long as you’d like – even permanently. Entrepreneurs are required to submit a business plan, but the range of acceptable businesses is wide, spanning medical or biotech products, “green” and “cleantech” products and even, “…online gaming or social network software.” Essentially, anyone who convinces the Chilean government that their venture is somehow technology-driven can qualify. Upon qualification, the government, “…will give you 60% of your due diligence costs, or up to $30,000″ to visit and explore the country. Should you decide to re-locate there, another $30,000 will be provided to you for start-up costs. In fact, if a business is willing to locate at one of their designated technology centers, “…the government will pay for 5 years of rent (up to $1 million) or split the costs if you want to locate elsewhere.” Beyond that, $25,000 will be provided for training local employees. Furthermore, if your business decides it needs to import talent from other nations, all you need to do is demonstrate the creation of “a legitimate tech job and they’ll give you a visa, no questions asked.” Such immigration flexibility is unheard of in most developed countries, including the United States.

These and other producer incentives are discussed at length on InvestChile, a website established by the Chilean government for prospective entrepreneurs.

The Future

Chile’s economic future has brightened considerably merely by being admitted to OCED. From now on, Chile will have a seat at the table when free trade agreements and other economic covenants between major economies are up for discussion. The country’s economic fundamentals also appear strong. ReportLinker expects, “…real GDP growth to average a solid 3.4% beyond 2010 through to the end” of a 10 year growth horizon. Unemployment stands at a modest (given the recession) 9%, while inflation has held steady at 4%. Additionally, Chile remains and is becoming an even more attractive foreign direct investment choice. Perhaps most encouraging, however, is Vivek Wadhwa’s characterization of Chile as ,”…a thriving democracy with one of the most open economies in South America” – and his promise that ,”…if I was starting a new tech company and didn’t need to be in any particular area, I’d start it in Chile in a heartbeat.” Thirty years ago, nothing close to that could be truthfully said of Chile. Today, majority opinion mirrors Mr. Wadhwa’s and the numbers are proving it.