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The Dutch investment bank ING reckons talk of Americans rediscovering savings is misleading.
Households are slashing their purchases of financial assets. The savings ratio is rising because borrowing is falling even more rapidly. The household savings ratio climbed to 6.9 percent in May, up from a low point of 0.4 percent in 2005. But their purchases of financial assets plunged to -0.5 percent of income in the first quarter (the most recent data), down from a recent peak of 21.6 percent in 2004.
Given this, it will be more than interesting to see the second quarter figures, which should reflect most of the March to June global equity rally. But until then, what do you think? Is the "Americans are saving" mantra misleading?
Emily Kaiser adds:
Judging from the draft communique of the G8 leaders meeting in L'Aquila, no one is in a particular hurry to talk about ending the domination of the dollar in world currency reserves. Our correspondents at the Italian summit report that the debate being pushed by China and others is likely to be played down.
But the genie is out of the bottle. Beforehand, Beijing floated the idea of alternative to the dollar. Russia and Brazil weighed in with some thoughts. The United Nations also acknowledged earlier this year the desire of some countries for a "more efficient reserve system" in a series of proposals for global financial reform.
Pope Benedict issued an ambitious call to reform the way the world works on Tuesday shortly before its most powerful leaders meet at the G8 summit in Italy. His latest encyclical, entitled "Charity in Truth," presents a long list of steps he thinks are needed to overcome the financial crisis and shift economic activity from the profit motive to a goal of solidarity of all people.
Following are some of his proposals. The italics are from the original text. Do you think they are realistic food for thought or idealistic notions with no hope of being put into practice?
It's starting to look like the Summer of Love. Two reasons: The recovery is taking on a L-U-V shape globally, and it's going to require huge amounts of love and nurturing to keep growth alive.
L stands for Europe, where slowness to confront deep damage and write down the remaining $500 billion odd in bad bank debt, mean rebuilding will be protracted and painful.
The United States sports a U, bouncing along bottom right. But its financial giants swallowed harsh medicine early and the U.S. has the flexibility to stage an impressive rebound, if not undone by a fast-rising jobless rate at 9.5 percent and heavily indebted consumers.
V stands for Asia (ex Japan), the surprise region showing resiliency, thanks to its rapid Q4/Q1 inventory workdown and huge infrastructure spend by China.
Like the Summer of Love 41 years ago, it is a drug-fueled affair. G20 governments are peddling $820 billion in stimulus this year, equivalent to 2 percent of GDP. Central bankers are spending even more. The Fed has doubled its balance sheet to $2.04 trillion the past 12 months.
Greedy bankers are routinely blamed for the credit crisis but one British-based poll of -- well, financiers -- spreads the blame more widely.
Gary Jenkins, head of fixed income research at Evolution Securities, wanted a more specific scapegoat and ran a poll of about 200 mostly fund managers and investors asking them to pick their credit crisis culprit. Former U.S. Federal Reserve Chairman Alan Greenspan was the clear winner, picking up 35
percent of the votes. He has been widely criticised over the past year for low interest rate policies that helped fuel the credit boom.
For Federal Reserve Chairman Ben Bernanke, 2009 may be a tough year as political battles pile on top of tough economic challenges.
Bernanke must juggle a host of problems as he tries to revive the economy. With the U.S. unemployment rate at 9.4 percent and still climbing, he faces the challenge of recovering from an 18-month-old recession with unconventional policies that some worry will ignite inflation.
Readers of MacroScope who live in the northern hemisphere will be gearing up for some summer reading.
James Montier, the market psychologist who is also an equity analyst at Societe Generale, has come up with his annual recomendations of what to read. The full list is here, but for the current economic and market crisis he has this to offer:
In a pinch a business owner can turn to family members and ask them to help out. A quarter of small businesses have a family member working for free, according to the American Express Open Small Business Monitor.
General Motors said it will drop about 1,600 U.S. dealers as it struggles to slash billions of dollars in costs and debts. But our Detroit photographer Rebecca Cook reports that, unlike Chrysler, GM does not intend to release to the media a list of dealers hit by the closure plans. Chrysler disclosed in court documents on Thursday the identities of the 789 dealerships it wants to terminate under the bankruptcy process.
In much the same way that analysts have been debating whether equities are in a bear market rally or a new bull market, economists now have to deal with the question of whether the global economy is just bottoming out or is now actually recovering. The two things are obviously linked as BlackRock equities chief Bob Doll indicated when he said this week that equity markets will require the economic backdrop to actually improve rather than simply grow less bad if rises are to be sustained.
The less-dreadful-than-feared syndrome has been around for some time. U.S. markets, for example, found themselves cheering the loss of 539,000 jobs in April simply because its was the smallest since October and looked to be an improvement.