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Report: World Economy Teetering On New Crisis

global economic crisis

image credit washingtonpost.com

Distrust in the financial system and the holding of cash proves that the world’s economy is still on very shaky ground, according to a new survey of people in the world’s 10 richest countries.

The Associated Press report discovered that people in many different countries are afraid to spend and invest and are still hoarding cash because of the Great Meltdown of 2008. The AP’s reporters interviewed families and individuals in the world’s 10 richest countries and found that average people are now so risk-averse that they are afraid to invest, borrow and buy.

“People want to get as much distance as possible from the financial system,” economist Arne Holzhausen of the German insurance company Allianz said. “They want to be in control of their financial matters. People no longer trust the markets.”

New Behaviors that Could Lead to New Financial Crisis

The AP has detected new patterns of behavior that could delay recovery and set the stage for the next financial crisis. Many families and individuals are still on shaky ground and making financial decisions that put them in worse shape and greater risk for poverty.

New book reveals how to keep this “gangster” economy from murdering your money…

These behaviors include:

  • Keeping large amounts of cash. Households in the six biggest developed countries have added $3.3 trillion to their holdings in the five years since 2008 – more than they did in the five years before ‘08. Much of that cash is held in bank accounts that aren’t earning enough interest to keep up with inflation.
  • Refusing to invest in higher-paying investments. Investors in the United States, China, Japan, Germany, France, the United Kingdom, Russia, Italy and India pulled $1.1 trillion out of stock mutual funds since 2009. This means the middle class hasn’t participated in the stock market’s recovery. The wealthiest 10 percent of Americans now own 80 percent of the stock which means they’re benefiting from the boom while average people are not.
  •  Putting large amounts of money, around $1.3 trillion, into bond mutual funds. The low interest rates they pay often don’t keep up with inflation. A popular retirement investment in Germany is a bond fund that pays 1.75 percent in interest – about the rate of inflation. This means that millions of people who think they are “saving for retirement” won’t have enough money to live on in their golden years.
  • Reining in spending. Adjusting for inflation, AP said, consumer spending in the countries rose 1.6 percent a year during the five years after the crisis — about half the growth rate before the crisis

The Illusion of Safety

The AP noted that: “A flight to safety on such a global scale is unprecedented since World War II.” The problem is that the safe instruments people are turning to are not really that safe.

Warren Buffett one said about bonds, the “safe” investment: “Bonds should really come with a warning label.”

Motley Fool writer Robert Baillieul  compared investing in bonds to “picking up nickels in front of a steamroller.” In other words, he says, the people who have fled stocks have actually invested in instruments that are potentially far more dangerous. Bonds provide an illusion of safety.

Why Recovery May Not Come

French spending hasn’t risen since 2007 and British spending is actually 3 percent lower than it was in 2007. Since consumer spending accounts for about 60 percent of the economy, that means little or no economic growth.

The picture painted by this survey is bleak and worrisome. The recovery around the world is uneven and not benefiting average people.

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3 comments

  1. “People want to get as much distance as possible from the financial system,” economist Arne Holzhausen of the German insurance company Allianz said. “They want to be in control of their financial matters. People no longer trust the markets.”

    Sure there is some of that distrust of markets, but it isn’t the free market they distrust, it is governments they don’t trust. Governments can too easily interfere in the free market through legislation. People want to have security as much as they want liquidity, which is why the market is strong for fractional gold. If you’re buying food, fuel, and ammunition, you won’t want only to have gold bars.

  2. A neighbor was talking at breakfast and as usual the conversation went to politics. He said he had decided not to pay any bill’s at all. He said he was putting that money into a coffee can or he was buying food and whatever he could before the crash. He spoke of building a shelter in his backyard. He was disappointed that other neighbors and friends did not want to hear what he was reading about our economy and the apparent economic crash that is coming. I’ve been mulling this over and while I agree about being prepared and trying to talk with folks about what might take place in this country,I’m mixed on not paying bill’s or getting rid of my debt’s. If I got myself overextended then that is on me and my family. If i bought something on credit I should pay the bill. Shouldn’t I? There’s very little this one person can do about the global crises,but for me and my family we will prepare the best we can and continue to take responsibility for actions and our own debt. We appreciate this site and enjoy reading what common sense ideas and suggestion’s you and your readers write about. Thanks again. God Bless America and your readers.SP

    • His neighbors problems will soon outweigh any advantage the neighbor might think he has by not paying his bills. No electricity-shut off, no water-shut off, no phone-shut off. no home -didn’t pay his taxes…no wife-left with the kids… ???

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