Families hoard cash 5 yrs after crisis

[pinkytoe]

http://www.statesman.com/news/ap/agriculture/ap-impact-families-hoard-cash-5-yrs-after-crisis/nbCk3/
I thought this was an interesting article on how households around the globe have slashed their spending and are not investing in stocks anymore.

[SteveinMN]

Thanks for the link, pinkytoe. In a weird way, it's kind of comforting that people in other countries feel the same way as Americans about the system. On the other hand, it's disconcerting that people have been so scarred and have lost faith in the system. Either way, the past five years have been quite the wakeup call.


even people with good jobs and little fear of losing them remain cautious.
I'm still wondering who those people are. As global outsourcing creeps ever further up the corporate ranks and as volatile as some lines of work can be, I don't know as there are "sure things" anymore. Even government workers, who traded a lot for the security of those jobs, are seeing cutbacks as government tax bases diminish. And, as time goes by, it gets harder and harder to just move where the jobs are. There are houses to sell in poor markets and no guarantees in any company that the business will be there tomorrow. It doesn't surprise me a bit that people are hunkered down.

[larknm]

Thanks, pinkytoe, great for perspective.

[cx3]

Thanks for the link. My wife and I are those people.We are in our 40's and have a total of 30k in paper investments(401k).We wouldn't even have that if we could get it out.Our excess money(what little there is) is going towards the mortgage.
I did have a couple of issues with the article.
1. They seemed to put the blame for this global meltdown on one US company,Lehman Bros.
2. The author writes like the worst is behind us. I'd say the worst is still to come. I'm waiting on the global currency colapse.

[iris lilies]

I read that article yesterday, it was on Yahoo. Then it showed up in the newspaper this morning.

Here's what didn't make much sense to me (bolded part)

...Household debt surged at an unprecedented rate in the five years before the financial crisis. In the U.S., the U.K. and France, it soared more than 50 percent per adult, according to Credit Suisse. For all 10 countries, it jumped 34 percent. Then the financial crisis hit, and people slammed the brakes on borrowing. Debt per adult in the 10 countries fell 1 percent in the 4½ years after 2007. Economists say debt hasn't fallen in sync like that since the end of World War II. People chose to shed debt even as lenders slashed rates on loans to record lows. In normal times, that would have triggered an avalanche of borrowing.

I interpret that to mean that debt fell a total of 1% over that 4.5 year period. Only 1%! That isn't much at all, and it doesn't seem to be far beyond an expected deviation of error. If everyone is so scared of the economy, why aren't they doing better at knocking out debt?

The stock market is making huge gains, it's shocking. But me--I retreated somewhat a few weeks ago, I think it is unnatural for the Dow to be above 15,000, haha! It's a freakshow, I wanted out. But the ride up was fun. And we still have a fair amount in mutual funds and individual stocks, we are not entirely out of it.

[gimmethesimplelife]

I read that article yesterday, it was on Yahoo. Then it showed up in the newspaper this morning.

Here's what didn't make much sense to me (bolded part)

...Household debt surged at an unprecedented rate in the five years before the financial crisis. In the U.S., the U.K. and France, it soared more than 50 percent per adult, according to Credit Suisse. For all 10 countries, it jumped 34 percent. Then the financial crisis hit, and people slammed the brakes on borrowing. Debt per adult in the 10 countries fell 1 percent in the 4½ years after 2007. Economists say debt hasn't fallen in sync like that since the end of World War II. People chose to shed debt even as lenders slashed rates on loans to record lows. In normal times, that would have triggered an avalanche of borrowing.

I interpret that to mean that debt fell a total of 1% over that 4.5 year period. Only 1%! That isn't much at all, and it doesn't seem to be far beyond an expected deviation of error. If everyone is so scared of the economy, why aren't they doing better at knocking out debt?

The stock market is making huge gains, it's shocking. But me--I retreated somewhat a few weeks ago, I think it is unnatural for the Dow to be above 15,000, haha! It's a freakshow, I wanted out. But the ride up was fun. And we still have a fair amount in mutual funds and individual stocks, we are not entirely out of it.I read this article when it first was out on yahoo.com with interest. Having lived in Arizona for a number of years, I have learned never to trust a boom as this is a boom and bust state defined. I saw the S and L collapse of the late eighties here and if anyone remembers the name Charles Keating - a big name in the Arizona S and L collapse - I made money one Christmas vacation working for a temp service photocopying documents related to his many upscale travels. That's besides the point, though - my point is that I have learned what goes up must come crashing back down. Once you start thinking that way, buying stocks seems to be extremely risky. Though I am kicking myself for not buying shares of Ford Motor Corp when it was under $2 a share in 2009 and if I were a gambling kind of guy I might buy shares of Xerox right now - it's trading around $11 a share with a P/E ratio of I think it was 9. Not too bad I dare say. But I'm not in the mood to gamble. There is a part of me that is very worried about a currency collapse. I am not unaware that my plans of getting old somewhere less expensive hinge on the US dollar retaining value and I look at all the debt and I look at decreasing tax bases and all the outsourcing and offshoring and I wonder how the dollar is still worth all that much. Maybe it has something to do with the US increasing its role as an energy producer - that is one bright spot. Though I don't know that it's enough to retain the dollar's value.

I do have a very small amount of money tied up in a mutual fund and I have to say I am amazed at how well this fund has done the past few years but like I said, what goes up - comes crashing back down. And I'm not sure I'm good at reading signs, or seeing the crash coming before it's too late. Rob

[SteveinMN]

I look at all the debt and I look at decreasing tax bases and all the outsourcing and offshoring and I wonder how the dollar is still worth all that much.
IMHO, several factors are involved:
- Even when people aren't spending money like they used to, this still is a very rich good-sized nation;
- Despite the game of chicken being played by the Republican party at the moment, the U.S. still is one of the more politically-stable developed countries;
- The United States seems to be where lots of big ideas come from. In the past, it was the airplane and the telegraph. More recently, it has been personal computers and medical devices. And the US's biggest export remains ideas: American music and movies are known worldwide. Fast food (not necessarily an American invention but certainly perfected here) is an expanding market throughout most of the world. There's a lot of money for many people in those areas.


I do have a very small amount of money tied up in a mutual fund and I have to say I am amazed at how well this fund has done the past few years but like I said, what goes up - comes crashing back down. And I'm not sure I'm good at reading signs, or seeing the crash coming before it's too late.
Rob, hardly anyone is good at reading those signs. What's worse, when most people see the signs clearly, they overreact. I'm not a financial professional, but I would suggest that, if your mutual fund investment is making you a little queasy right now, maybe you should move some of it ("profit-taking") to a more stable instrument. Many people panic and sell it all; I think time has proved that is almost always a mistake. But skimming some cream off the top still leaves something to drink.

[Molly]

Hoarding? It's called saving. Since when did saving become a bad word?

[CathyA]

Hoarding? It's called saving. Since when did saving become a bad word?

Good point Molly!

[ApatheticNoMore]

There of course are few stable investments. Money in the bank? Yes well it seems it's been made counterparty risk to derivatives and the derivatives have first rights to that money. I've had a financial advisor say: you do not want money in the bank, Cypress is the new model. IT WILL EARN NO INTEREST AND IT'S NOT SAFE, the safety is an illusion, you might as well BE PAID for the risk you are taking rather than take unpriced risk. FWIW, that financial advisor may not know anything, I do not know, this is not financial advice :). Money in a credit union? Might be better. Is it allowed to be counterparty to derivatives? Don't know. Maybe I'll research those laws sometime. Money under your bed? Haha, really do you want to be constantly paranoid about someone stealing the money under your bed? I think it's FAR better to be broke and poor and bankrupt than to become that kind of person. Ymmv.

A very cynical argument for the stock market and blindly following the herd: who has their money in the stock market? Answer: the well off. Now I don't think they necesarily have *most* of their money in the stock market, I don't have that data, I certainly would not if I was rich! But I do know that like 70% of stocks are owned by the top 5% of the population, so the money in the stock market is that of the richer members society. And they are too big to fail. The well off are who the government is run for (well you can disagree with that assessment, it's a judgement call). Is it ever really going to allow the stock market to fail? And let the better off members of society take a hit (not necessarily a fatal hit but)? Maybe if they've all taken counterbets against the stockmarket (certainly Goldman and so on were playing both sides last time). I don't know about that. Btw I know the 5% != Goldman Sachs, there is well off and their is wealthy beyond what most people are capable of even grasping.

Yea I know defending the stock market not on fundementals but on power relations, is way out on crazy limb (especially as I'm all very tentative about it anyway - not certain). It's highly risky, but then stocks always are. The stock market can stay irrational longer than you can stay solvent, especially as I get the impression that concern about the irrationality of the stock market is not new and has been going on for over two decades. In the long run we're all dead.

[catherine]

Hoarding? It's called saving. Since when did saving become a bad word?

I think there's saving and I think there's hoarding. You save for things you want or need--a car, a house, retirement.

Hoarding in this situation suggests that people are are fearful of losing their money. Hoarding is often based on fear. I happen to believe that a lot of people hoard money in the negative sense. I have nothing against saving money, but everything positive has a negative side. When you have no good reason for saving, and when you pass up opportunities to use money in a positive way to your detriment, that's hoarding.

[ApatheticNoMore]

I happen to believe that a lot of people hoard money in the negative sense. I have nothing against saving money, but everything positive has a negative side. When you have no good reason for saving, and when you pass up opportunities to use money in a positive way to your detriment, that's hoarding

I'm not sure I've ever been rich enough or pulled in a high enough salary for there not to be a tradeoff. FWIW that's not even a complaint about my salary, I just seems there's *always* a tradeoff between money that could be used in a positive way NOW, and saving money for one's economic protection now and in the future (that translates to: unemployment and retirement). I'd have to somehow be convinced I was richer. It's a very hard call to make: what to save and what to spend.

[catherine]

I'm not sure I've ever been rich enough or pulled in a high enough salary for there not to be a tradeoff. FWIW that's not even a complaint about my salary, I just seems there's *always* a tradeoff between money that could be used in a positive way NOW, and saving money for one's economic protection now and in the future (that translates to: unemployment and retirement). I'd have to somehow be convinced I was richer. It's a very hard call to make: what to save and what to spend.

Well, I've never been accused of hoarding money, that's for sure.. or been successful at saving it either.

[ApatheticNoMore]

:) ok I'm a little more on the hoarder side I guess, it's about financial security really fwiw, like I've said there's very little absolute security to be had imo.

[bae]

Problem is of course, the hungry grasshoppers descend like locusts to take your "hoard", because "you didn't build that" :-)

http://1.bp.blogspot.com/-2pHDjidRqeM/UXEudNPraiI/AAAAAAAAAJY/nmzxGwWv-sw/s1600/9781416951407-2.jpg

[catherine]

:) ok I'm a little more on the hoarder side I guess, it's about financial security really fwiw, like I've said there's very little absolute security to be had imo.

Not to get all mystical on you, ANM, but one of my favorite quotes that I have on my bulletin board is by Bernadette Roberts:


Until we go beyond our notions regarding the true nature of life, we will never realize how totally secure we really are, and how all the fighting for individual survival and self-security is a waste of energy.

[jp1]

The problem is that with the federal reserve keeping interest rates artificially low, well below what we all know to be the real rate of inflation, and printing $1 trillion per year on top of that, no one is allowed to "save" in a relatively safe investment any more. In order for our savings to earn more than inflation we all have to "invest" in risky investments like stocks. It's only been relatively recently that that was/is the case.

I'd like to save for my retirement. If that's "hoarding" then so be it. Having to gamble it on wall street just to avoid it actually losing value due to inflation sucks and is part of the whole class warfare being waged by the rich wall street banksters against the middle class.