Magic Johnson’s Fast Break Into Business

The legendary L.A. Laker’s secret behind a successful sports-to-business transition.

Don  Yaeger  July 2, 2010

Magic Johnson was in the seventh year of his Hall of Fame career when thoughts of his basketball afterlife led him to the office of uber-executive Michael Ovitz, co-founder of Creative Artists Agency, Hollywood’s most powerful agency. Johnson had watched many former athletes attempt entry into the world of business only to fail, and he was hoping for advice that would allow him to chart a different course.

“Michael dropped the newspaper in front of me,” Johnson tells SUCCESS. “He asked, ‘When the paper arrives, what do you read first?’ I told him I opened the sports section.

He looked at me and said, ‘Wrong answer. From here on, if you want to be involved in business, you have to read business.’ I walked in his office 6-foot-9 and proud. I left feeling 5-foot-tall and stunned.”

And thus began the business career of a man who, just 22 years later, in 2009, was hailed by Ebony magazine as one of the most influential black business leaders in America. Built over the past 23 years, Beverly Hills, Calif.-based Magic Johnson Enterprises now owns or operates gyms, movie theaters and other businesses in 89 cities across 21 states.

“I learned a couple of great lessons there with Michael Ovitz,” Johnson says. “The first is that if you want to be successful, you have to be willing to use every connection you’ve got. It is a funny story how that meeting came about. During a Lakers game the season before, I was standing on the sidelines getting ready to pass the ball inbounds. There were two businessmen I respect—[studio executive] Peter Guber and [recording industry executive] Joe Smith—who were sitting there courtside and were huge fans. I looked over and asked, ‘How do I get into business?’ It probably wasn’t the best place to ask, but they could tell I was honestly looking for help, so later they arranged for me to meet Michael Ovitz.

‘Be Ready to Listen’
“The second thing I learned is that if you want someone to be your mentor, you better be ready to listen and be humbled,” Johnson says. “Michael wasn’t sure about working with me because so many athletes think they can move right into business and never take anyone’s advice. I had to prove to him I was serious and that I would listen.”

That meant changing his reading habits, Johnson says, and he immediately started grabbing business magazines, newspapers and books to take with him on the road.

But reading was just the beginning of Magic’s business education. His next big lesson was “listening.” Johnson says his first foray into the world of business taught him what happens to entrepreneurs who aren’t listening to their customers. In 1990, he decided to begin a chain of retail sporting goods stores called Magic 32 that he intended to take nationwide.

To get the business off the ground, he decided to attend a major sporting goods convention and negotiate for products he’d sell at the stores.
“I didn’t ask a single customer what they’d be interested in,” Johnson says. “I went there looking for products I’d be interested in buying. I had to learn that I was not my customer. Actually, I was taught that lesson by what happened after we opened.”

Among the line of products Johnson chose to carry was a series of $1,500 leather jackets. They fit Johnson’s taste, but not the taste of his customers, as evidenced by the fact they were still hanging on the racks when the initial store closed just a year later.

“I’m sure I’ve made bigger business mistakes,” Johnson says, breaking into his trademark grin, “but I can’t think of one.”

Early Lessons
Johnson’s earliest entrepreneurial influences came from his parents in his hometown of Lansing, Mich. “I grew up in the kind of black family that people today worry is disappearing. Even though there were nine of us, we had what we needed— two great parents, food on the table and time for the whole family to be together,” he writes in his 1993 memoir, My Life.

Both parents worked hard; his dad on the night shift at a GM factory as well as second jobs that included pumping gas and running his own trash-hauling business, and his mother in janitorial and cafeteria work. “My parents believed in work—not only for themselves, but for their children, too,” Johnson writes. The kids had assigned chores around the house and had to earn their spending money. “By the time I was 10, I had my own little neighborhood business. I raked leaves, cleaned yards and shoveled snow. With the money I earned, I could go to the movies and buy an occasional record.”

Johnson’s dad, Earvin Johnson Sr., provided other life lessons, too. Through one-on-one basketball games, his father played tough and not always fair. “But that was the point. Dad was teaching me that I wouldn’t always get the calls, that I had to play above the contact,” Johnson writes. “He taught me to win against the odds, and never to quit.”

Johnson’s basketball career included a national championship at Michigan State, five NBA championships with the Los Angeles Lakers and a gold medal with the “Dream Team” at the 1992 Olympics. He played alongside and against some of the NBA’s best players, including Michael Jordan, Larry Bird, Kareem Abdul-Jabbar and John Stockton.

His new teammates are business partners who include Sodexo, T.G.I. Friday’s, Aetna, AMC Theatres, 24 Hour Fitness and Starbucks. He has carved out a niche, becoming the go-to player for companies hoping to expand into the urban marketplace, using the power of his brand in that space to increase the credibility of businesses desiring a part of the pie in what Johnson calls “underserved and ethnically diverse urban communities.”

Who should have a trust?

There are many different reasons why you might want to have a Trust. You might want to avoid probate; provide for minor children; provide for someone too young or who lacks the ability to manage money; avoid paying federal estate taxes; contribute to charity; distribute real property, particularly if it is located in another state; keep property separate; provide for yourself and your care if you become incapacitated and avoid a conservatorship proceeding, maintain privacy; and decrease the possibility of a legal challenge to the way you want your property distributed. If any of these situations apply to you, you should consider using a Trust as part of your estate planning.

Probate is the legal process where a court oversees the payment of debts and distribution of property under a Will. This can be a slow and costly process if the estate is even moderately large and complicated, and all details of the estate are made public as part of the court proceedings. Several states have summary procedures for small estates, but if your estate doesn’t qualify for a summary procedure, you would be a good candidate for a Trust. If you transfer assets to a Trust while you are alive, when you die, the assets belong to the Trust, not to you, so they are not included in probate, but will be distributed in the way you direct in the Trust documents. The process of distribution will be private and confidential.

Minor children can’t inherit property, but require an adult to manage property for them until they reach the legal age of majority in the state where they live. A parent can nominate a guardian for the child’s financial matters in a Will, but the probate court will have the final say on whether to approve the appointment. If you transfer assets to a Trust that is for the benefit for your children while you’re alive, you can name the Trustee(s) and alternate Trustees who will control the Trust when you die. It’s possible for a court to remove a Trustee you have appointed, but only for misbehavior, so you have more control over who will control your children’s assets.

If you leave children assets in a Will, the children receive full control of the assets when they come of legal age. In most states this is 18, and if the assets are large, an 18 year old may not be ready to manage that amount of money. If you set up a Trust, you can control when the young person will receive full control of the assets, such as at age 25 or 30. Some older adults are also unable to manage money well. This may be because of a developmental disability or just because the person lacks money skills. If you want to leave assets to someone like that, you might want to set up a Trust that will control the assets throughout the life of the Beneficiary. People also want to leave money for the care of pets that survive them, and a Trust is a good way to do that.

If your estate is over the minimum amount for paying Federal Estate Tax ($2 million in 2008, $3.5 million in 2009, no tax in 2010, and a $1 million minimum starting in 2011) Trusts can be used to exempt some of your assets from your taxable estate. This can reduce your total estate to an amount below the estate tax minimum. You can also receive tax benefits during your lifetime by setting up a Trust that makes a donation to charity when you die but keeps the income for you while you’re alive.

Probate laws differ from state to state, so to avoid unforeseen results under different laws, if you own real property in different states you can put that property in a Trust while you’re alive so there will be no change when you die. The Trust will continue to own the property, and there will be no reason for the various states to be involved in how the property is distributed.

If you want to make sure that certain property isn’t divided between beneficiaries, which might result in the property being sold, you can put property in separate Trusts and give separate instructions for distribution. That way, it won’t be possible for a court to decide that the property can be divided and/or sold.

If you become incapacitated from old age or some accident or illness, someone will need to take care of your financial affairs for you. By setting up a Trust where another Trustee will take control of your assets if you become incapacitated, you can prevent someone from filing a petition to be named your Conservator. A court will only appoint a Conservator if no other arrangements have been made, so the court is not likely to grant a conservatorship to someone else if you have already made adequate arrangements for your own care. This allows you to choose who you want managing your affairs and allows you to exercise future control in the way you set up the Trust.

In a conservatorship hearing, all of your affairs are made public, including details of your alleged incapacity. Most of us would not want the details of our private lives to be discussed by others in a public courtroom, so a Trust that avoids this is useful. Trusts can also provide privacy about your assets. If you don’t want all the details of your assets and the assets you are passing to others to be made public, you can use a Trust to preserve privacy.

Finally, if you think someone might challenge a Will because they don’t like how you want to leave your property, you can make such a challenge much more difficult by using a Trust instead of a Will. To prove a Will invalid the challenger has to show that you were incompetent at the time the Will was drafted and executed. A Trust isn’t just drafted and executed at one point in time. Assets are often transferred to the Trust over a long period during the person’s lifetime and the Trust may manage those assets for many years before the death of the Grantor. While you must be legally competent at the time you set up a Trust, it is more difficult to prove such a Trust invalid than a Will, since the challenger has to claim that the person was incapacitated not only when the Trust was set up, but during every transaction that the Grantor carried on during the life of the Trust.

law.freeadvice.com

Mitochondria: Structure and Functions

Mitochondria are called the ‘powerhouse of the cell’. Mitochondria contain a number of enzymes and proteins that help in processing carbohydrates and fats obtained from food we eat to release energy. Read on to know about the structure and functions of the organelle.

Be it the beating of the heart or moving of our hands, every action requires energy. This energy is stored in ATP (adenosine triphosphate) molecules that are produced in the mitochondria by the process of oxidative phosphorylation. Although mitochondria are present in every cell, they are found in high concentrations in the muscle cells that require more energy. Though the primary function of mitochondria is to produce energy, they also play an important role in the metabolism and synthesis of certain other substances in the body.

Structure

Mitochondria are rod-shaped structures that are enclosed within two membranes – the outer membrane and the inner membrane. The membranes are made up of phospholipids and proteins. The space in between the two membranes is called the inter-membrane space which has the same composition as the cytoplasm of the cell. However, the protein content in this space differs from that in the cytoplasm. The structure of the various components of mitochondria are as follows:

• Outer Membrane
  The outer membrane is smooth unlike the inner membrane and has almost the same amount of phospholipids as proteins. It has a large number of special proteins called porins, that allow molecules of 5000 daltons or less in weight to pass through it. The outer membrane is completely permeable to nutrient molecules, ions, ATP and ADP molecules.
• Inner Membrane
  The inner membrane is more complex in structure than the outer membrane as it contains the complexes of the electron transport chain and the ATP synthetase complex. It is permeable only to oxygen, carbon dioxide and water. It is made up of a large number of proteins that play an important role in producing ATP, and also helps in regulating transfer of metabolites across the membrane. The inner membrane has infoldings called the cristae that increase the surface area for the complexes and proteins that aid in the production of ATP, the energy rich molecules.
• Matrix
  The matrix is a complex mixture of enzymes that are important for the synthesis of ATP molecules, special mitochondrial ribosomes, tRNAs and the mitochondrial DNA. Besides these, it has oxygen, carbon dioxide and other recyclable intermediates.

Functions

• The most important function of the mitochondria is to produce energy. The food that we eat is broken into simpler molecules like carbohydrates, fats, etc., in our bodies. These are sent to the mitochondrion where they are further precessed to produce charged molecules that combine with oxygen and produce ATP molecules. This entire process is known as oxidative phosphorylation.
• It is important to maintain proper concentration of calcium ions within the various compartments of the cell. Mitochondria help the cells to achieve this goal by serving as storage tanks of calcium ions.
• Mitochondria helps in the building of certain parts of the blood, and hormones like testosterone and estrogen.
• Mitochondria in the liver cells have enzymes that detoxify ammonia.

Although most of the genetic material of a cell is contained within the nucleus, the mitochondria have their own DNA. They have their own machinery for protein synthesis and reproduce by the process of fission like bacteria do. Due to their independence from the nuclear DNA and similarities with bacteria, it is believed that mitochondria have originated from bacteria by endosymbiosis.
By Debopriya Bose

Business to Consider: Direct Selling/Network Marketing

Selling/Network Marketing

Brenna  Fisher  May 28, 2010

In its simplest form, direct selling (aka network marketing) is nothing more than one person promoting or selling a product or service directly to another. Today, an endless variety of products are distributed using the direct selling business model, including vitamins, weight-loss aids, cleaning products, clothing, jewelry, home décor, cookware, legal insurance, travel services, financial products, books, toys, educational and motivational products… and the list goes on. If you have an interest in a particular industry, chances are there’s a direct selling company that supplies products in that category.

Rather than paying for massive advertising efforts and retail outlets, direct selling companies rely on an independent sales force to spread the word about them and their products. Many companies have added social media, print and broadcast advertising campaigns, but most advertising is done person to person, face to face… or Facebook to Facebook.

Perks of becoming a distributor include deep discounts on products and compensation for helping the company attract other distributors. Those who develop a network of independent representatives can leverage their time and maximize their earning potential. Not only are they paid for their own sales, they’re paid a percentage of the sales made by members of their organization (or downline). The more people a direct seller brings into the company, the greater his or her earning potential.

Other benefits can include bonuses and prizes for a job well done. These can include luxury travel, fine jewelry, cash or cars. Beyond the tangible rewards, direct sellers gain other benefits, such as communication and sales skills, greater self-confidence and leadership capabilities.

Getting started as a direct selling representative involves signing on with a company and purchasing a startup kit with brochures, access to online resources and product samples. In many cases, free local training, webinars and teleconferences are available to help representatives learn more. Many companies also hold annual conferences where they offer additional training and recognition.

The Bottom Line

You will need to purchase a startup kit and sign an agreement to become part of a direct selling company. To receive full commissions, you may be required to purchase products on a monthly, bimonthly, quarterly or annual basis, depending on the company.

This type of business can be done in as many or as few hours a week as you choose, which makes it ideal as an income supplement or for building up to a certain level of earnings before leaving a full-time job. That said, to earn a substantial regular commission check, you must commit to treating this opportunity as seriously as you would any other job or business endeavor. You are the boss… your hours are flexible, but not optional.

Is It Right for You?

Recommended skill set: People skills, consistency, self-confidence, drive to grow and market business, belief in the product or service you are promoting.

Risks: With some companies, representatives are expected to stock inventory or receive regular shipments of product. If you do not use or sell the products consistently, you could end up with a garage full of boxes. False expectations are one of the greatest risks.

Potential income: Varies greatly (from $0 to $10,000 or more per month), depending on your level of effort, skill and the company’s compensation plan.

Pros and Cons at a Glance

1. Minimal investment	1. No guaranteed income
2. Easy to fit into an already busy schedule	2. You may have to regularly place orders to receive commissions
3. Residual income	3. Overcoming misconceptions about the industry
4. Maximum control over your time and income	4. It may take months to build to a substantial level of income
5. Built-in personal growth opportunities	5. Products or services without a unique selling position may be difficult to sell

Paying to Breathe: Bottled Oxygen A New Trend?

Oxygen Bottled and Sold for the Everyday Person By Blair Mathis

Takeaways

• Bottled Oxygen is expensive.
• It can alleviate headaches
• It is useful for athletes.

In the 1980′s, people scoffed in the face of bottled water. Water in a bottle? Why pay a dollar for something that can be gotten free from a drinking fountain? Because it was convenient. Bottled water is as common as the air we breath. Will anything surpass it in popularity? Well….A new trend is brewing in America, and that is bottled oxygen. That’s right, oxygen in a bottle. Sure, it’s free all around you, but…these come in different scents and flavors! Not to mention they cost $50 a piece. So, what is bottled oxygen? It is an aerosol canister that is presurized with 90% – 93% pure oxygen, with the option for a scent/flavor addition. This canister comes with either a spray nozzle, a mouth piece, or an air tube for large cans. You take a long deep breath or two, and then seal it up.
These bottles come in varying sizes. Unlike the ones scuba divers use, which are heavy and are strapped to ones back, these cans are smaller and designed for everyday use. They range in size from large with a weight of several pounds, to being ultra-small, and weighing mere ounces. The typical mouth piece is shaped like a mouth guard. Simply insert into mouth, press a button, and breathe deeply. Oxygen-in-a-bottle is not an entirely new idea. In fact, it is quite old. Oxygen bars have existed for quite some time, giving users a few minutes of oxygen to enhance whatever experience the person hopes to enhance. Likewise, divers have used oxygen canisters for breathing, and mountain climbers have used portable oxygen to survive at high altitudes. So what is the appeal for an everyday person who is neither 14,000′+ feet up a mountain or hundreds of feet down below the ocean? One website selling portable oxygen bottles, BetterThanAir.com, says, “Todays breathable oxygen contains less than 22% oxygen. At one time our breathable air contained more than 50% oxygen…We have adapted, but at a cost….” The website claims that by breathing more oxygen than is available in the environment, we can increase energy, reduce muscle aches, prevent the formation of cancer cells due to oxygen deprivation, sleep better, and endure exercise/athletics longer, among other things. Will bottled oxygen do these things? Anyone who has taken a few deep breaths of oxygen will tell you that it will make one feel relaxed and energized. Likewise, for someone who suffers from chronic headaches, bottled oxygen is often used to alleviate them. As for the claims of helping prevent against diseases and cancers, this is something I can neither confirm or disprove. I, personally, shall take that assertion with a grain of salt. While bottled oxygen may be an intriguing novelty, it is an expensive one, 50x the cost of bottled water. With the average canister costing about $50 and offering between 30 – 150 breaths, depending on brand and size, it can be quite expensive to experiment with this novelty.
There is also a slight danger for the average person to inhale pure oxygen. Oxygen toxicity is a possibility, which will lead to lung collapse. However, one would have to inhale many dozens of these bottles in a row for that to happen. Benefits do exist for the everyday person to use these, mainly for times when more oxygen is needed. Marathon runners can surely benefit from a puff or two of 90% oxygen, and the muscles will be able to endure longer. For mountain bikers, back country skiers, or mountaineers who don’t want to carry a 20lb. canister up a mountain, a small 6inch can can be infinitely useful. Also, for someone who is suffering from an asthma attack, deeply breathing pure oxygen can alleviate it. As bottled oxygen becomes more demanded and common, prices are likely to drop, which will make costs of oxygen for climbing and diving more affordable.
Whether these are useful is up to the person using it. If you want to have some handy oxygen around, then it certainly wouldn’t hurt. Just remember not to ‘breathe’ and smoke at the same time. 

Bureau of the Public Debt

Our Heritage

“The United States debt, foreign and domestic, was the price of liberty. The faith of America has been repeatedly pledged for it… Among ourselves, the most enlightened friends of good government are those whose expectations of prompt payment are the highest. To justify and preserve their confidence; to promote the increasing respectability of the American name; to answer the calls of justice; to restore landed property to its due value; to furnish new resources, both to agriculture and commerce; to cement more closely the Union of the States; to add to their security against foreign attack; to establish public order on the basis of an upright and liberal policy; these are the great and invaluable ends to be secured by a proper and adequate provision, at the present period, for the support of public credit.”

Alexander Hamilton, 1790, First Report on the Public Credit

Public Debt In America
1768 Bond

Public debt is a fact of life. The U.S. has had debt since its inception. Our records show that debts incurred during the American Revolutionary War amounted to $75,463,476.52 by January 1, 1791. Over the following 45 years, the debt grew.

Notably, the public debt actually shrank to zero by January 1835, under President Andrew Jackson. But soon after, it quickly grew into the millions again.

The American Civil War resulted in dramatic debt growth. The debt was just $65 million in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt grew steadily into the Twentieth Century and was roughly $22 billion as the country paid for involvement in World War I.

The buildup to World War II brought the debt up another order of magnitude from $51 billion in 1940 to $260 billion following the war. After this period, the debt’s growth closely matched the rate of inflation until the 1980s, when it again began to increase rapidly. Between 1980 and 1990, the debt more than tripled. The debt shrank briefly after the end of the Cold War, but by the end of FY 2008, the gross national debt had reached $10.3 trillion, about 10 times its 1980 level.

The national debt as a percentage of the gross domestic product

In recent years there has been a “debt ceiling” in effect. Whereas Congress once approved legislation for every debt issuance, the growth of government fiscal operations in the 20th century made this impractical. (For example, the Treasury now conducts more than 200 sales of debt by auction every year to fund over $4 trillion in debt operations.) The Treasury was granted authority by the Congress to issue such debt as was needed to fund government operations as long as the total debt did not exceed a stated ceiling. The “ceiling” is routinely raised by passage of new laws by the United States Congress.

In February 2009, Congress raised the debt limit to $12.104 trillion.

1776: The Birth of Public Debt

George Washington,
portrait by Gilbert Stuart

“No pecuniary consideration is more urgent than the regular redemption and discharge of the public debt: on none can delay be more injurious, or an economy of the time more valuable.”

George Washington, 1793, Message to the House of Representatives

The public debt of the United States can be traced back as far as the American Revolution. In 1776, a committee of ten founders took charge of what would become the Treasury, and they helped secure funding for the war through “loan certificates” (equivalent to bonds) with which they borrowed money for the fledgling government from France and the Netherlands. This committee morphed over the next decade into the Department of Finance. Robert Morris, a wealthy merchant and Congressman (nicknamed “The Financier”), was chosen to lead a new Department of Finance in 1782.

As the new Superintendent of Finance, Morris was the first committee member to order a reporting of the total government debt owed. This marked the beginning of annual Treasury reports to the President. On January 1, 1783, the public debt of the new United States totaled $43 million.

1783: Raising Taxes to Meet Operating Expenses

In 1783, Congress was given the power to raise taxes. This helped meet the normal operating expenses of the new national government. But in 1785, revenues were still inadequate. Alexander Hamilton rallied for the government to assume some debt and help meet its expenses. He pushed the framers of the new Constitution to establish measures to provide the assurance that the debt would be paid, and thus increase confidence in the growing government. Many of Hamilton’s policies have remained a part of our government’s operations ever since. On September 2, 1789, Congress established The Treasury Department, naming Alexander Hamilton, its chief architect, as “Secretary.”
Alexander Hamilton,
portrait by John Trumbull,
1792

1789: Alexander Hamilton

Alexander Hamilton (b. January 11, 1755 – d. July 12, 1804) was the first United States Secretary of the Treasury, a Founding Father, economist, political philosopher and confidant of George Washington. He was one of America’s first Constitutional lawyers, and co-wrote “The Federalist Papers,” a primary source for Constitutional interpretation. As Washington’s Treasury Secretary, Hamilton was very influential in the policy decisions of the new government. An admirer of British political systems, Hamilton emphasized strong central government and implied powers, under which the new U.S. Congress funded the national debt, assumed state debts, created a national bank, and established tariffs and taxes. “A national debt, if it is not excessive,” Hamilton argued, “will be to us a national blessing.”

1790: The Funding Act

Hamilton, estimating the total public debt at $77.1 million, called for the issuance of new federal bonds to cover the debt. By assuming the obligation to pay this debt, the government firmly established its good credit. By February 1792, interest-bearing government bonds were selling for $1.20-on-the-dollar. A shrewd investor, buying $100 in bonds in 1786 (at a market price of about $15) could have sold the replacement bonds issued by the new government for $121.50 in 1792, realizing a handsome profit. The system of debt management instituted by Hamilton worked well to consolidate the debt and permit the government to make interest payments as they came due (as well as to secure the faith and credit of the government in the new United States and abroad).

1791: The Bank

To consolidate the government’s financial affairs, Hamilton proposed the formation of a national bank to supplement the activities of The Treasury. Despite the opposition of Jefferson and Madison, the First Bank of the United States opened in 1791 with a total capital of $10 million. Just ten years later, though, Jeffersonian Democrats, who didn’t trust banks, overturned this progress. Jefferson’s Secretary of the Treasury, Albert Gallatin, was a chief critic of Hamilton’s methods of debt management, and made it his priority to reduce public debt. This worked for a time, reducing the public debt to $45.2 million by 1811, but was derailed by Jefferson’s “Louisiana Purchase.”

1803: Albert Gallatin

Albert Gallatin, 1848

Abraham Alfonse Albert Gallatin (b. January 29, 1761 –  d. August 12, 1849) was a Swiss-American anti-Federalist diplomat and congressman, and the longest-serving United States Secretary of the Treasury. He opposed Hamilton’s entire program, but, faced with declining revenues and the massive cost of the War of 1812, Gallatin was forced to reintroduce the Federalist taxes he had previously denounced. By funding the war deficit ($69 million) with bond issues, he helped defray the costs. He later helped charter the Second Bank of the United States in 1816.

1812: The First Test of Debt

The War of 1812 was financed mainly through the use of borrowed funds. Total public debt increased from $45.2 million on January 1, 1812, to $119.2 million as of September 30, 1815.

1837: Andrew Jackson

Andrew Jackson,
portrait by Thomas Sully,
1824

Andrew Jackson, the seventh president of the United States, was suspicious of banks and did not trust the paper money they issued. In 1837, he liquidated the Second Bank of the United States, returning the government’s original investment plus a profit. This resulted in a huge government surplus of funds. (In 1835, the $17.9 million budget surplus was greater than the total government expenses for that year.) By January of 1835, for the first and only time, all of the government’s interest-bearing debt was paid off. Congress distributed the surplus to the states (many of which were heavily in debt). The Jackson administration ended with the country almost completely out of debt!

1846: Rebuilding the Debt

The United States went to war with Mexico in May, 1846, over the annexation of Texas and California. The total cost of the war was estimated to be $64 million, and Congress authorized the issuing of additional debt to meet these obligations. It is this concept that would later become the basis for the Savings Bond program. By the end of 1849, public debt totaled $63.1 million.

1860: The Civil War

“This war of ours, in its magnitude and in its duration, is one of the most terrible. It has produced a national debt and taxation unprecedented, at least in this country. It has carried mourning to almost every home, until it can almost be said that the ‘heavens are hung black’.“

Abraham Lincoln, 1864, Speech at Great Central Sanitary Fair, Philadelphia, PA

Public debt in 1860 totaled $64.8 million (the annual budget of the federal government at the time was $63.1 million). But this small debt would look completely insignificant compared to the amount of money the government would owe at the end of the Civil War.

It is estimated that the Civil War cost the nation $5.2 billion in direct expenditures. As the war dragged on, the federal government was forced to completely overhaul its financial organization to cope with this as-yet-unheard-of amount. Enormous leaps in the methods and amount of public financing took place during the war years, including:

• Legal Tender Act (1862) authorized the Treasury to issue $150 million in United States notes and authorized the sale of $500 Million in bonds to fund the war effort.
• National Bank Act (1863) permitting the charter of national banks.

By the end of 1865, interest-bearing public debt stood at $2.2 billion, but the union had been preserved.

1865: Salmon P. Chase

Salmon P Chase,
circa 1855-65

Salmon Portland Chase (b. January 13, 1808 – d. May 7, 1873) was one of Lincoln’s first political appointees, and served as U.S. Treasury Secretary during the Civil War (and then as Supreme Court Chief Justice of the United States). Chase was an active and avid abolitionist, and devoted to ending slavery. As Treasury Secretary, Chase oversaw the establishment of a national banking system, which secured a market for government bonds and provided a permanent uniform national currency. The first U.S. federal currency was printed in 1862, during Chase’s tenure as Secretary of the Treasury. He designed the bills (many of which originally featured his likeness).

1899: Dawn of a New Age

At the close of the fiscal year of 1899, the gross debt including Treasury Notes stood at $1.9 billion, and government ended the century with its finances in very good order.
Third Liberty Loan Poster

1913: Federal Reserve

The aftermath of the financial panic of 1907 caused many financial experts to rethink the need for a central bank in the United States. Legislation in 1913 enabled the formation of the Federal Reserve System, giving it the responsibility of maintaining flexibility in the money supply, providing a way to rediscount bank loans (by selling loans on a secondary market to increase credit), and overseeing the functions of the banking system. Prior to our entrance into WWI, the Treasury also underwent a process of reorganization. In 1916, the government prepared for war by raising taxes and authorizing the Treasury to borrow $300 million. Congress authorized the first Liberty Loan of $5 billion, and permitted the Treasury to sell $2 billion in short-term certificates to generate operating revenues. By the end of 1919, total debt exceeded $25 billion, but the war was won and a great burden of debt had been accepted and managed without causing substantial disruption to the economy.

1920: Reorganization

The Bureau of the Public Debt (established later, in 1940) is a direct descendant of the reorganization of the Treasury Department in 1919 and 1920. What had been the Office of the Register and the Division of Loans and Currency were both placed under a new Commissioner of the Public Debt, who headed the new Public Debt Service. A Division of Public Debt Accounts and Audits was formed to maintain auditing control over these two operations and the public debt efforts of the Federal Reserve. At the time, the number of Public Debt Service employees totaled 3061.

1929: Panic

Through the 1920s, federal budget surpluses got as high as $689 million. Total debt was gradually reduced from $24 billion to about $17 billion. But business activity began to decline in the summer of 1929, and the stock market crash followed in October. By the early 1930s, it was apparent that a major economic crisis was in progress. President Hoover tried to balance the budget, and FDR continued this after being elected in 1932, but bad times forced the deficit up as public works efforts (to offset financial hardships) were funded. By 1933, the budget deficit was nearly $3 billion, and the debt had risen to more than $22 billion. Many economists at the time disdained the attempt to balance the budget “no matter what,” and, drawing on the ideas of the English economist John Maynard Keynes, thought that a general fiscal depression was as great a national emergency as a war, and that the government should be willing to use deficits to stimulate the economy, just as it would borrow money to fight a war.
John Maynard Keynes (right)
and Harry Dexter White
at the Bretton Woods
Conference, 1944

1932: John Maynard Keynes

John Maynard Keynes (b. June 5, 1883 – d. April 21, 1946) was a British economist whose ideas, called “Keynesian economics,” had a major impact on modern economic and political theory as well as on many governments’ fiscal policies. He advocated an “interventionist” government policy, by which the government would use fiscal and monetary measures to mitigate the adverse effects of economic recessions, depressions and booms. He is one of the fathers of modern theoretical macroeconomics.

1935: US Savings Bonds go to War

The sale of United States Savings Bonds (first offered on March 1, 1935) helped manage the increasing public debt incurred as the country prepared for WWII. (See figure A in the right column)

1940: The Bureau

FDR created the Fiscal Service of the Treasury in April of 1940. As part of this agency reorganization plan, the Public Debt Service was designated the Bureau of the Public Debt. Total public debt was $50.7 billion at the time. But with the coming of WWII, that figure, and the operations of the Bureau itself, would be greatly altered yet again.
Norman Rockwell’s
Freedom of Speech Poster

1945: WWII

“And so my fellow Americans, I ask you to demonstrate again your faith in America by joining me in investing…“

Franklin D. Roosevelt, 1941, Radio Address

It has been estimated that total government expenditures during World War II were $323 billion. The effort to fight the war required a total mobilization of the financial resources of the United States; it is doubtful that any citizen was untouched by the war effort. This put great pressure on the fiscal agencies of the government. By 1945, defense expenditures would be 15-times what they were in fiscal year 1941.

Approximately $211 billion of the estimated $323 billion spent fighting the war was borrowed. Treasury attempted (with much success) to manage this borrowing while minimizing its impact on the economy. To do this, they worked to better tailor securities to meet the needs of purchasers, especially small investors, and encourage savings through the purchase of government securities.

After the First World War, many small investors were disappointed in their Liberty Bonds experience when values fell. To win back these small investors, the Treasury issued Savings Bonds as non-marketable securities. They were non-negotiable, registered (facilitating easy replacement if lost or stolen), with fixed values, and could be easily turned into cash. This helped make small investors and savers feel more secure. This effort was so successful that Savings Bonds constituted almost 18% of total public debt by the end of the war (helping to pay down nearly $50 billion). The increased reliance on non-marketable securities also helped Treasury attain one of Hamilton’s original goals: widespread ownership of the debt.
Series H bond, 1952

1950: Postwar

There was a budget surplus each year from 1946 to 1949, but the total debt never fell below $250 billion. Fiscal theory no longer centered on balancing the budget, but, following Keynes, took into account the effect that government spending had on economic growth and stability and demanded that government spending should be used as a tool for controlling the economy. To help bring order to the sprawling post-war bureaucracy, the Bureau of the Public Debt was given new headquarters, and began to take advantage of many new technological advances, like punch cards and microfilm. With the outbreak of hostilities in Korea in June, 1950, defense spending jumped from $17.7 billion to $40.4 billion in 1953, and the Treasury again became concerned with the problem of financing a war effort.

In 1957, Under-Secretary of the Bureau of the Public Debt, W. Randolph Burgess, approved Parkersburg, West Virginia, as the Bureau’s new electronic processing center. The new location benefited from its rural location as “a non-critical target area” (this being the height of the Cold War), and enjoyed an abundant local workforce. Soon after, the DATAmatic Corporation is authorized to install a “state-of-the-art” 25-ton DATAmatic Model 1000 computer system, called “The Great Brain,” at Parkersburg. The computer alone occupied 6,000 square feet!

1960: Turbulence

No one could have forecast the increase of government activity and debt at the beginning of the 1960s. Up to that time, the post-World War II period had seen only seven years of government deficits (associated with the Korean War or economic recession) mixed with seven years of budgetary surplus. The total debt rose by a modest $30 billion (from $260 billion to $290 billion). And if inflation is taken into account, the real value of the debt would be seen to fall during this time!

The Bureau of the Public Debt grew by leaps and bounds during the ’60s, introducing new paper- and time-saving processes to help investors. In 1968, regulations were put into place for the use of book-entry accounting in which Treasury securities would be recorded as entries in the accounts of the Federal Reserve Bank that issued them, instead of as definitive securities issued in the form of printed pieces of paper. This new system reduced the amount of paperwork involved with government securities transactions!
Freedom Shares, 1967

But the war in Vietnam, and the country’s deeper intervention from 1966 onward, as well as the Johnson administration’s “Great Society” programs, raised the budget deficit to $25.2 billion, the most it had been since World War II. With a tax increase, the budget for 1969 actually showed a surplus of $3.2 billion, marking the last time the federal government’s finances would be “in the black” until 1998. (By 1970, total debt would rise to $382.6 billion, increasing $92 billion over the decade.)

1970: Tightening Our Belts

President Nixon inherited the expensive Vietnam War, as well as Johnson’s “Great Society” programs. Deficits rose through the early ’70s to levels previously unheard-of except during World War II. In 1973, the budget deficit was $14.3 billion. Then, with the sharp rise in the price of petroleum products due to the OPEC-engineered shortage of 1973, inflation increased dramatically. Monetary policy was tightened to fight inflation, but interest rates hit new highs and the deficit reached $59 billion by 1980.

By 1980 total federal debt stood at $914 billion, an increase of $532 billion since 1970. (Sales of Savings Bonds continued to rise but could not keep pace with the increase in the total debt. At the end of the decade, the total of $72.7 billion in Savings Bonds and Notes was only 8% of the public debt.)

In 1971, Treasury began selling new issues of Treasury Notes for cash at “competitive auctions” instead of employing its longtime policy of offering securities for subscription at fixed prices and interest rates announced in advance. This left it to the financial markets to set prices and rates of interest on the securities, ensuring that each offering could be sold with minimal intervention by the Federal Reserve.

Also in 1971, Public Debt installed a “faster” computer, a Honeywell H-1250, to handle the increased workload from growing savings bond sales. But by mid-decade, the Honeywell gave way to a UNIVAC 1110 computer, which was installed in Public Debt’s first “raised floor” data center at Parkersburg.

Throughout the 1970s, there was an increase in the amount of public debt securities owned by foreign governments. Sales of these securities reached $28.5 billion in 1973.

1980: Electronic Age for Treasury Securities

Official Portrait of
President Ronald Reagan,
1981

“For decades, we have piled deficit upon deficit, mortgaging our future and our children’s future for the temporary convenience of the present…. You and I, as individuals, can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we are not bound by that same limitation?“

Ronald Reagan, 1981, Inaugural address

Ronald Reagan (b, February 6, 1911 – d, June 5, 2004), who became the 40th president of the United States in 1980, declared “debt” to be one of his major campaign issues.

Reagan and his advisors were adherents of Milton Friedman (b. July 31, 1912 – d. November 16, 2006), an American Nobel Laureate economist, a promoter of “economic liberalism,” and an intellectual renowned for his theories of “consumption analysis.” Friedman advocated minimizing the role of government in a free market as a means of creating political and social freedom. This “laissez-faire” style of economics allowed “the market” to set prices and interest rates.
Series HH Bond, 1980

Between 1980 and 1990, the debt more than tripled as the government borrowed money to fund military build-ups and many elaborate new policies, such as “the war on drugs.” Americans began relying more and more on credit cards and jumbo mortgages, and being “in debt” became a new way of life in America.

And yet, as the Cold War drew to a close, the economy of the United States remained essentially healthy. How could this be? It is said that the Cold War was fought not by armies, but by banks. From the 1950s through the 1980s, both sides built massive debt during their international shadow-boxing match. Western powers “won” this match not by the size of their debt, but by the nature of that debt, according to a 1995 article in USA Today. “The U.S. financed its battles in the Cold War by borrowing against the future, constraining, but not really limiting, social spending,” the article posits. “The Eastern bloc financed its Cold War battles the only way it could: by taking shortcuts on every imaginable count, saving a ruble here… and a ruble there.” Thus, when the Berlin Wall came down in 1989, the U.S., guided by policy carried out by the Treasury, was better able to take advantage of economic growth to come.

In 1983, the first “personal computers” arrived at Public Debt, in the Division of Administration, supported (in 1986) by a new IBM mainframe computer system. The new “computer age” brought major changes to the staffing of the Bureau (sometimes resulting in reductions) and to the processing of bonds and other instruments (facilitated by new technologies like optical and magnetic character recognition and advanced scanning).

In 1986, Public Debt introduced Legacy Treasury Direct, a system allowing investors to buy Treasury securities in book-entry form and hold them directly with Treasury, electronically, without the services of a broker or other intermediary.

1990: Public Debt Goes Online

Official White House photo
of President Bill Clinton,
1993

Despite backlashes against ’80s “greed,” and the obstacle of the huge public debt (approximately $3.3 trillion in 1990), the economy of the United States was relatively strong at the start of the new decade. The government made a commitment to “fiscal discipline,” and in 1998, President Bill Clinton (b, August 19, 1946) presented to Congress the first balanced federal budget (with no annual deficit) since 1969.

Throughout the ’90s, a Wall Street boom drove investment in Treasury securities. Treasury kept up with demand by taking advantage of many technological breakthroughs.

In 1992, Bureau computer systems are again upgraded when the IBM mainframe is replaced with an Amdahl system. It’s about this time that (no reflection on the new systems) the first “computer virus” strikes at Public Debt. (It is cured quickly!)

By the mid-’90s, Public Debt was online! The first Bureau of the Public Debt website was on America Online. Soon, users could access Public Debt through a Treasury-managed website, and then, in December, 1997, through Public Debt’s own website based in Parkersburg (publicdebt.treas.gov). A new Y2K compliant IBM 9672-R35 CMOS computer replaced the Amdahl mainframe, and new technology finally allowed the mainframe and client/server technology to merge, helping the Bureau itself become more “user friendly.”

2000: A New World

Series I Bond

While the new millennium began quite auspiciously, terrorist attacks in New York, Pennsylvania and Washington DC on September 11, 2001, seriously undercut the economic progress being made in the United States. To counter the effects of the economic slowdown and the increased expenditures on national security that followed the attacks, the new president, George W. Bush (b, July 6, 1946), instituted tax cuts and refunds, but the deficit grew, and with it, the national debt.

Meanwhile, Public Debt set about to aggressively take advantage of new technologies for success. The IBM CMOS was replaced with the new, more powerful IBM Z900. Then, in October of 2002, the first version of TreasuryDirect is opened to the public, offering the ability to purchase and manage holdings of Series I savings bonds through a single online portal (www.treasurydirect.gov). Throughout the 2000s, Treasury instituted many more state-of-the-art initiatives for the benefit of investors, including OTC Direct, a web-based system for purchasing paper savings bonds, and FedInvest, an online administration tool for Federal agencies to use when investing in Treasury securities.

Today

Today, Treasury’s Fiscal Service, with the assistance of the Bureau of the Public Debt, continues to help guide, administer and manage US government financial policy for the best possible returns.

Through our massive online resources and state-of-the-art investment and administrative tools, federal agencies and individual investors alike have more access to the world of government finance than ever before.

Public Debt employs nearly 2,000 dedicated, highly-trained people in multiple locations. The success of the bureau today, and of all of its associated agencies and services, is due directly to the commitment, knowledge and enthusiasm of the people who keep the Bureau of the Public Debt running smoothly.

• Wholesale Securities Services
  • 220 auctions annually
  • $9.1 trillion in bids
  • $4.5 trillion awarded
  • $4.2 trillion in marketable securities held in National Book-Entry System
  • 1.3 trillion in Treasury securities transfers daily
• Retail Securities Services
  • $195 billion in paper savings bonds held by 55 million investors
  • $72.7 billion in book-entry marketable issues held in Legacy Treasury Direct by 383,000 investors
  • $9.2 billion in electronic savings and marketable issues held in TreasuryDirect by 285,000 account holders
• Government Agency Investment Services
  • $3.9 trillion invested by 80 federal agencies
  • $301 billion invested by 7,000 state and local governments
  • $234 billion loaned to 39 federal agencies
• Summary Debt Accounting
  • $8.8 trillion outstanding
  • $4.9 trillion held by the public
  • $3.9 trillion held by government accounts
  • $72 trillion flow of funds annually
• Franchise Services
  • 72 agency customers
  • $80 million (est.) in annual revenue

More workers try Direct Sales

By Ellen Wulfhorst

NEW YORK (Reuters) – More U.S. workers, hoping to make ends meet in the recession, have turned to direct selling, but revenues are not keeping pace with growth in the sales force.

The ranks of people selling wares out of their homes, at parties and door-to-door grew by 100,000 last year to 15.1 million in the United States, but sales dropped some 4 percent, according to the most recent figures available.

“We’re seeing a lot of people turning to direct selling, either to replace an income or to supplement an income,” said Amy Robinson, spokeswoman for the Direct Selling Association, the industry’s trade association based in Washington.

However, she said: “We haven’t yet see a bump in sales which we generally see.”

A DIP IN DIRECT SALES

In economic downturns of 1990-91 and in 2001, a jump in direct sellers was followed by a jump in direct sales, she said.

But this recession resembles the mid-1980s downturn that saw a dip in direct sales, the DSA said. Figures are not yet available for 2009, when the economy remained in a slump and the number of Americans losing their jobs continued to grow.

“We anticipate we’re going to see that jump in sales either to bear out this year or in the early part of next year,” she said.

Direct sales were $29.6 billion last year, the DSA said, down from $30.8 billion in 2007 and $32.18 billion in 2006.

That doesn’t mean direct sales aren’t worthwhile in tough times, said Dave Gardner, a San Francisco Bay area resident who has turned to direct selling, from vitamins to legal services, when his jobs have dried up or been downsized.

“It gets you out of the house, and it gives you training on how to talk to people as well as it keeps you from being depressed about the fact that you just got laid off,” he said.

“And it does give you hope,” he added. “Who knows? You might find you like it even better than staying in a cubicle and say the heck with ever going back to a job again.”

Dove Chocolate Discoveries, a division of Mars Inc, has seen its sales force double this year to about 2,000 people, said Betty Palm, president of the company whose representatives sell chocolate products not found in stores.

“TAKE A LOOK AT WHAT OTHER OPTIONS EXIST”

“If either you or perhaps a spouse, if they were laid off, had reduced hours or if their wages were scaled back, direct sales represented a new income source,” Palm said. “The economy has forced people to take a look at what other options exist.”

Calculating exact figures for direct sales, which entails selling a product or service person-to-person away from a fixed location, is difficult because most states do not require direct sellers to register, the DSA said. Also, many direct selling companies have short life spans, it said.

However, the DSA said it estimates sales by DSA members account for some 90 percent of all U.S. direct sales.

The most well-known and long-running are Avon Products Inc,, which sells beauty products, and Tupperware, which sells food containers. Avon is known for its “Avon calling” slogan, and Tupperware for the house parties that women would host to show off the wares.

Liz Kowalski, who sells Dove chocolates in the Chicago area, said she is inundated at the holidays with requests for tasting parties that feature such items as chocolate martinis.

She said she has seen a change in who wants to join up. “Before the recession, it was a lot of stay-at-home moms that wanted a little extra money, and that’s still an option now if their husbands have been downsized or laid off,” she said.

EARNING $300 TO $2,000 ON CAMPUS

At Ohio State University, 22-year-old marketing major Kristiauna Mangum said she earns $300 to $2000 a month selling cosmetics by mark, a division of Avon, and helped recruit 150 other sales representatives on campus.

“With the economy the way it is, more people are inclined to listen to ‘how can I get into direct selling?’” she said.

In New York, psychologist Shelley Reciniello threw her first house party this year to sell the cowl-like scarves she makes on the side because firms on Wall Street, where she sold them in the past as corporate gift items, have scaled back.

She also has counseled her clients struggling with job loss to try their hand at new projects such as direct selling.

“In this economy there’s a lot of things you can do from home,” she said. “I say to people, ‘You can have a short-term goal of trying to make some money and pay the bills and sell some things and then get back on track when the economy is better.’

“Who knows? Some of these things might turn into businesses,” she said.

(Editing by Michelle Nichols and Cynthia Osterman)
Dec 16, 2009

The Home Based Business Tax Advantage

We all know that there are many advantages to owning a home based business. Working from home allows you more freedom to spend time with your family and friends, more time to do the things that you want to do, and the ability to set your own hours and standards of business operations. However, there are many tax advantages from owning a home based business as well.

First, it is important that you keep good records. You must be able to prove that your home based business is not just a hobby – but an actual income producing business in order to qualify for the deductions.

According to the Internal Revenue Service, in order to qualify for the home business deductions, you must use a portion of your home exclusively and regularly as your principle place of business. This means that you must use a specific area of your home only for your business. If the area in question is used for both business and personal use, it does not qualify.

For instance, a spare room that is used only as a home office qualifies. However, if you operate your business from your kitchen table, that space does not qualify – because your kitchen is used for personal use as well as business use. There are only two exceptions to the exclusive use rule. If your home is used to operate a daycare center, you qualify. You also qualify if part of your home is used for the storage of inventory or product samples.

If you qualify for the home business deduction, you can figure the deduction that you will be allowed to take. This is based on the amount of space you use in your home for business purposes, in relation to the overall size of your home. There are two ways to determine this, and both methods are acceptable by the IRS’s standards. First, you can divide the area – which is the length multiplied by the width – of the space you use for your business, by the total area – length multiplied by width – of your home. This will give you the percentage that you are allowed to deduct.

The easier method, in most cases, is to go by the total number of rooms in your home. If all the rooms are about the same size, you can simply divide the number of rooms used for your business by the total number of rooms in your home. If your home had five rooms, all being about equal in size, and you only use one of those rooms for your business , your deduction would be 20% ( 1 divided by 5).

Once you know what percentage you can deduct, you need to know what you can apply that deduction to. Common deductions for a home office include: real estate taxes, mortgage interest, casualty losses, depreciation, insurance, rent, repairs, security systems, and utilities. You can even deduct services – such as housecleaning services. Remember, you can only deduct the percentage that is allowable for you, such as 20%, of the total cost of each expense.

Under section 179 of the tax code, you can also deduct equipment in your home that is used for your business – even equipment that is also used for entertainment or personal use, such as computers, photographic equipment, phonographic equipment, communication equipment, and video recording equipment. This type of equipment is referred to as ‘listed property,’ however, if the equipment was bought for exclusive use of your business, and is not used for personal reasons, then the ‘listed’ rules do not apply. Instead, the cost of this type of equipment is deducted, in full, as a business expense.

However, for equipment that does fall under the listed property rules, 50% or more of the usage of the equipment must be for business purposes in order to qualify for the section 179 deduction, and the deduction is figured based on the percentage of business use of the equipment.

More detailed information about the home business deduction can be found at the IRS website at:

http://www.irs.gov/publications/p587/ar02.html#d0e792 and more information about the section 179 deduction for equipment can be found at http://www.irs.gov/publications/p587/ar02.html#d0e2240

Don’t forget other deductions, such as office supplies, stationary, printing, office furnishings, etc. These types of expenses are 100% deductible, subject only to the limits discussed in the Tax laws for the current tax year. These expenses are not limited to the percentage of your home that is used for your business.

As always, we recommend you discuss your tax situation with a CPA or accountant to ensure you stay within the law and get the maximum deduction possible.

Direct sales offer recession-proof jobs

By Charisse Jones, USA TODAY

Not long ago, Craig Lapp made his living driving a truck that helped carve Southern California’s soil into new developments. But then housing sales slumped, and in November 2007 Lapp’s construction company let him go.

While he searched for another job, Lapp began working alongside his wife, Lynne, in a business based in their Temecula home, selling nutritional supplements made by the direct-sales company Isagenix. Nearly two years later and with no construction job in sight, Lapp says a one-time sideline has become the couple’s bread and butter.

GOT A BUDDING BUSINESS? Latest Small Business news

“It’s paying our mortgage, our car payments … putting food on the table,” says Lapp, 55, who adds that he and his wife are earning a six-figure income. “It was our ‘Plan B’ that turned into our ‘Plan A.’ “

Direct-sales businesses that rely on home-based representatives to peddle their wares are seeing their sales forces rapidly expand as the nation’s unemployment rate soars to nearly 9% and those who lost jobs and nest eggs look for new ways to make money.

“We’re recession-resistant in the sense that more people come to us during economic hard times for supplemental income or replacement of a lost job,” says Neil Offen, president of the Direct Selling Association, the trade group that represents the largest U.S. direct sales companies.

While 2008 industry figures aren’t yet available, “Anecdotally we’re hearing that recruitment is up and … unfortunately as the unemployment rate rises to 10% or higher, we’ll be picking up more people who need an income-earning opportunity.”

The recession has become a recruiting tool. An Avon (AVP) cosmetics representative declares in TV ads that “I can’t get laid off. It’s my business.” Companies such as Isagenix, a marketer of weight-management and nutritional supplements and snacks, and jewelry maker Silpada Designs are coaching their representatives to spread the word that direct selling can keep you afloat in the faltering economy.

“Right now, our direct-selling opportunity is really the No. 1 product that we have to sell,” says Geralyn Breig, president of Avon North America.

With that in mind, Avon this year launched its most ambitious recruitment campaign and saw its U.S. sales force grow to more than 680,000 through March, its largest ever, Breig says.

The same month, cosmetics company Mary Kay began airing its first TV ad for new representatives. In its first three days, visitors seeking information about becoming “beauty consultants” at MaryKay.com spiked 108%.

Silpada Designs, a Lenexa, Kan.-based company specializing in sterling silver jewelry, says its sales force in the U.S. and Canada was up 11.8% on May 1 from a year earlier. And Chandler, Ariz.-based Isagenix says its sales force was up 30% in March from a year before.

The hope is that larger sales forces will grow revenue, even in an economy that has shrunk sales for many companies.

“Representatives and recruiting are a leading indicator of future sales,” says Jerry Kelly, Silpada’s CEO, who acknowledges sales for his privately owned company were down roughly 10% in the fourth quarter of last year. “We’re optimistic that we’re going to fare fairly well this year as a company in a very difficult climate. … We’re seeing a more determined and focused representative who might be looking to supplement lost income for their family.”

There are roughly 15 million direct sellers in the U.S. — independent contractors who sell goods or services primarily through parties, demonstrations in someone’s home and one-on-one interactions. In 2007, the most recent year available, the sales industry generated $30.8 billion in U.S. sales, according to the Direct Selling Association.

Sellers are recruiting

Avon aired its first infomercial last month, and rather than promoting makeup or skin products, it targets new recruits. The company kicked off its TV commercials earlier, with a 30-second spot during the Super Bowl pregame show in February. That ad, a 60-second spot and the infomercial will air all year.

The cosmetics company is also going to job fairs this year, scouting for new salespeople at more than 140 such events, Breig says. It’s also beefed up its presence with online job search engines and since February has had a recruiting ad in the front of every one of its brochures.

“We’re executing the boldest recruitment campaign … in our history,” Breig says. “It’s part of our mission to enable women to have a financial solution.”

That resonated with Elizabeth Leyba, an assistant office manager for a plumbing company who lives with her family in Munster, Ind. Leyba saw her hours cut last year and needed a way to make up her lost income while maintaining her office job and busy household.

So in April 2008, after watching a TV commercial for Avon, she decided to give it a try. In the year since, she has discovered that she is an entrepreneur.

“I didn’t know it, and I’m thrilled that I am,” says Leyba, 39, who has sold more than $10,000 worth of Avon products and hopes to sell full time. “Even though there’s a recession, even though the economy is bad, my business has continued to grow.”

Leyba’s Avon earnings have paid for everything from gas to her 17-year-old son’s senior pictures. “I’ve been working since I was 16 so, you know, I like the fact … it’s your own business,” Leyba says. “I am in control of my future now. Not corporations.”

Compensation systems vary, but representatives primarily earn money from commissions on product sales or by purchasing the products wholesale and selling them at retail prices, says the Direct Selling Association. Commissions on sales typically are 25% to 50% of retail.

While representatives may also earn a small commission on the sales from representatives they’ve recruited, legitimate businesses do not use recruitment alone as a basis for compensation, the association says.

Denise Ruiz-Cabrera, 31, of Branchburg, N.J., was nearly five months pregnant in March 2008 when she lost her job as a corporate recruiter. She could not find a new job.

“I exhausted almost every single contact that I had,” she says of her search. Though she’d used Avon products, she’d never thought of selling them until this year. She saw one of Avon’s recruitment ads, “and I thought to myself, ‘Why don’t I do that?’ “

Knocking on doors is history. Direct sales representatives now find new customers through such methods as referrals, gatherings and parties, spontaneous meetings on the street and the Internet. Ruiz-Cabrera is one who does it all.

“I’ve sort of coined the term, ‘Welcome to 21st-century Avon,’ ” says Ruiz-Cabrera, who has a personalized website maintained by the company. She carries brochures in her purse and her baby’s stroller, promotes favorite products on her Facebook page and meets new representatives she’s recruited at the local Starbucks.

“I think people in these times, we’re hungrier than we used to be,” says Ruiz-Cabrera, who has made as much as $1,000 a month with Avon. “I had jobs lined up in the pipeline that all fell through because of the economy, and I focused all that energy on my business and in three months I’ve built something that looks to be pretty promising.”

Retirees join in the trend

It’s not only those who have lost jobs or endured pay cuts who have turned to direct selling.

“We’re hearing a lot from women who’ve recently graduated or are about to graduate and are finding it to be quite a challenge to find a career,” says Rhonda Shasteen, Mary Kay’s chief marketing officer. Then there “is the other end of the age spectrum: women who are approaching retirement age, and saw a lot of their savings wiped out, and find themselves with a very short time frame and with a need to make up a lot of money.”

Lawanna Lloyd, 66, and her husband, Rodney, 69, retired in 2000. But in the wake of the stock market fall, Lloyd says they are now worth about half of what they were just 18 months ago.

To make their retirement nest egg last longer, Lloyd’s husband returned to work last year, teaching chemistry at a private school in their town of Boerne, Texas. Then Lloyd, who was a stay-at-home mom through most of her marriage, decided she needed something, too. “That’s when I signed up with Silpada,” she says.

She is rattled that there was a need for her and her husband to return to work at all.

“It doesn’t feel good,” Lloyd acknowledges. “It makes life very uncertain, and scary. …Who wants to go back to work?”

But she made more than $500 from her first jewelry parties in April, and she enjoyed hosting them.

“I think Silpada does provide the perfect solution for earning some money and being able to set my own schedule,” she says. “We had decided that we would do something … to earn income for four or five years and see where we are then. Hopefully by then the market will have recovered and we’ll feel like we can retire again.”

Kim Joseph, 26, of Stewartsville, N.J., received a master’s degree in public health in 2006, but has struggled ever since to find a job in her field. She worked for her sister as a nanny before getting a full-time position as an account manager with a marketing solutions company.

Last June, she decided to start selling Mary Kay cosmetics on the side, partly to earn extra cash for her upcoming wedding. She now intends to forgo a public health career and eventually sell the makeup line full time.

“I’ve been able to see how being a consultant gives me room to impact the lives of women,” says Joseph, who added that selling Mary Kay also gives her freedom to spend more time with her husband without crimping their household income.

Direct selling is a fluid industry, with only 10% of representatives working “full time,” or at least 30 hours a week. Many work only long enough to meet short-term goals, such as holiday presents.

But some who work in or watch the industry believe the severity of this recession may cause more sellers to stick with it, even when the economy rebounds, at least as a way to supplement their income.

“I truly believe this has readjusted people’s thinking,” says Kathy Coover, executive vice president and co-founder of Isagenix. “With this economy, people can’t take their jobs for granted anymore. They have to have another alternative … so if something does happen, this is their safety valve.”

The Hundredth Monkey

The Japanese monkey, Macaca fuscata, had been observed in the wild for a period of over 30 years. In 1952, on the Island of Koshima, scientists were providing monkeys with sweet potatoes dropped in the sand. The monkeys liked the taste of the raw sweet potatoes, but found the dirt unpleasant. An 18 month old female named Imo found she could solve the problem by washing the potatoes in the salty ocean water, improving the taste of the potato. She taught this trick to her mother. Her playmates learned this trick and taught their mothers too. This cultural innovation was gradually picked up by numerous monkeys in the troop and observed by the scientists.

Between 1952 and 1958, all the young monkeys learned to wash the sandy sweet potatoes and make them more palatable. Only the adults who imitated their children learned this cultural improvement. Other adult monkeys kept eating the dirty sweet potatoes. In autumn of 1958, something startling took place. A certain number of Koshima monkeys were already washing their sweet potatoes, the exact number is not known. The hypothetical number given was 99. Then it happened. The hundredth monkey learned to wash the sweet potatoes. The added energy of that hundredth monkey somehow created an ideological breakthrough. Almost everyone in the tribe was washing their potatoes before eating them, but a surprising occurrence was observed by these scientists. The habit of washing the sweet potato had jumped overseas. Colonies of monkeys on other islands and the mainland troop at Takaskiyama began washing their sweet potatoes.

Although the exact number may vary, this Hundredth Monkey Phenomenon means that when only a limited number of individuals knows a ‘new way’, it remains the conscious property of those individuals. However, when one more individual manifests this new awareness, the field is strengthened, a critical mass is reached, and the awareness becomes the conscious property of all. This new awareness is communicated mind to mind.