Originally published October 17 2013
Families around the world are pulling cash out of banks and hiding it in their homes
by J. D. Heyes
(NaturalNews) The financial crash and Great Recession of 2008-09, which was felt far beyond U.S. borders, so spooked families around the globe that increasingly many have begun hoarding cash in their homes rather than trust it to banks.
According to a recent report by The Associated Press, "Five years after U.S. investment bank Lehman Brothers collapsed, triggering a global financial crisis and shattering confidence worldwide, families in major countries around the world are still hunkered down, too spooked and distrustful to take chances with their money."
'It doesn't take very much to destroy confidence'
An AP analysis of homes in the 10 largest economies found that families are still spending very cautiously. In addition, they have pulled hundreds of billions of dollars out of stocks and have trimmed borrowing for the first time in decades while stuffing money into savings and bonds, despite the fact that they offer miniscule interest rates that often don't match inflation.
"It doesn't take very much to destroy confidence, but it takes an awful lot to build it back," Ian Bright, senior economist at ING, a global bank based in Amsterdam, told the AP. "The attitude toward risk is permanently reset."
The current flight to financial safety is the most notable since the end of the Second World War, but the impact is substantial, as the AP reported:
The implications are huge: Shunning debt and spending less can be good for one family's finances. When hundreds of millions do it together, it can starve the global economy.
A global economy which relies on consumption as its lifeblood. When consumption slips, so, too, does growth in employment and wages - especially in the U.S., the nation with the world's largest economy and consumer class.
But the effect of saving more and spending less is having negative effects elsewhere too. European unemployment in several countries on the continent has surpassed 35 percent among youth, and that's a figure that is not going to fall quickly. Moreover, an additional wave of Brazilian, Chinese and Indian citizens rising up to the middle class, as hundreds of millions did in the past decade, isn't being forecast.
Still, the slip in spending and rise in saving shouldn't surprise many, considering that high unemployment in many nations (including the U.S.) has meant that there are fewer folks with paychecks to spend. Some who lost full-time gigs have replaced them with part-time employment. Others still are just playing it cautious.
"Lehman changed everything," Arne Holzhausen, a senior economist at global insurer Allianz, based in Munich, told the AP. Now, "it's safety, safety, safety."
In its analysis, the AP examined data showing what consumers did with their money in the half-decade before the Great Recession began in December 2007 and the five years since, through the end of 2012. It focused on the world's 10 largest economies, in order: U.S., China, Japan, Germany, France, the United Kingdom, Brazil, Russia, Italy and India. These nations consist of half the world's population and together comprise 65 percent of its gross domestic product.
Among the key findings:
--People fled stocks: "A desire for safety drove people to dump stocks, even as prices rocketed from crisis lows in early 2009, and put their money into bonds," the AP reported. In the five years following the crisis, investors from the top 10 countries pulled $1.1 trillion from stock mutual funds.
--The great cash hoard has begun: "Looking for safety for their money, households in the six biggest developed economies added $3.3 trillion, or 15 percent, to their cash holdings in the five years after the crisis," the AP reported. That's slightly more than in the previous five years, per the Organization for Economic Cooperation and Development.
--Getting rid of, and avoiding new, debt: In the five years before the financial crisis, average household debt grew at an unprecedented rate. In the U.S., the United Kingdom and France, debt rocketed more than 50 percent per adult; for all 10 countries, it rose 34 percent. Since then, debt per adult in the 10 countries has declined 1 percent, which economists say has not happened since 1946.
--Cutting spending: In order to cut debt and save more, spending has been sacrificed. "Adjusting for inflation, global consumer spending rose 1.6 percent a year during the five years after the crisis, according to PricewaterhouseCoopers, an accounting and consulting firm. That was about half the growth rate before the crisis and only slightly more than the annual growth in population during those years," the AP reported.
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