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We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.
The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.
These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.
When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?
Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.
Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.
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Wednesday, May 07, 2008
How Much Is Your Mother Worth This Mother's Day?
Comtex
FAIRFAX, Va., May 7, 2008 /PRNewswire-FirstCall via COMTEX News Network/ ----Edelman Index Says: $802,690!
The job-market value of the role of a mother has increased to nearly $803,000, according to financial advisor Ric Edelman's Annual Mother's Day Index(TM).
Edelman has been compiling the lighthearted annual study for ten years. The basis of the index is that the typical mom actually does many jobs: 17 of them. Using average annual compensation data from the U.S. Department of Labor's Bureau of Labor Statistics, Edelman totals up the average salaries for those 17 key occupations to arrive at each year's Index number.
"Since a mother wears so many hats and is on duty 24/7, I structured the Mother's Day Index to reflect a total of full-time yearly salaries for all the key positions she holds," said Edelman.
Edelman noted that the average multi-tasking mom routinely is expected to:
raise children
dispense medication and nursing care
assist with homework
cook meals
attend meetings and functions
provide transportation
keep house
listen to and resolve family problems
manage family finances
care for pets
maintain family order and harmony
keep family on schedule
The total of the 17 average annual salaries in 2008 is $802,690, an increase of $28,990 over last year.
Since it was first compiled in 1999, The Mother's Day Index has increased by 58.26%. During that same time, the Consumer Price Index has grown by 29.41%, according to Ibbotson Associates. "Every mom should know that over the past decade her value has increased at twice the rate of inflation," said Edelman.
The occupations which compose the Annual Mother's Day Index and their corresponding median annual salaries are:
a. Animal Caretaker $29,920 b. Chef $37,880 c. Computer Systems Analyst $72,230 d. Financial Manager $101,450 e. Food/Beverage Service Worker $19,360 f. General Office Clerk $25,200 g. Registered Nurse $59,730 h. Management Analyst $77,270 i. Child Care Worker $18,820 j. Housekeeper $18,700 k. Psychologist $66,110 l. Bus Driver $33,050 m. Elementary School Principal $79,200 n. Dietitian/Nutritionist $47,890 o. Property Manager $52,290 p. Social Worker $40,640 q. Recreation Worker $22,950 TOTAL $802,690
Edelman, whose firm manages nearly $4 billion in assets, said the index is actually a conservative number since it does not include the value of the retirement, health and insurance benefits that workers in these positions typically receive.
"Of course, no one can truly place a value on the love and affection that mothers give to their families," he said. "My index is designed to help us appreciate them: Think of the money you'd need to pay someone to do everything that your mom does!"
Founder and chairman of Edelman Financial Services, Edelman was ranked in 2007 by Barron's as the No. 2 independent financial advisor in the nation. He hosts The Ric Edelman Show, broadcast nationwide each week by ABC Radio, and is the author of six books, including the current best seller The Lies About Money.
SOURCE Edelman Financial Services, LLC
Copyright (C) 2008 PR Newswire. All rights reserved
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