Households Spooked by Financial Markets

Once upon a time it was only fear that we had to fear and nothing itself according to Franklin D. Roosevelt. The financial crisis managed to do many things, but one thing it did and that it is still doing after all these years is that it has scared the pants of households throughout the US and all over the world. Spooked out, freaked at what the banks have done and so distrustful that households will be playing it safe in the future.

Billions of dollars have been pulled from the financial markets over the past 5 years by those households. Although, we might well wonder how the stock markets have inflated then if those households have taken their money away and hidden it under the mattress. The answer lies purely and simply in the fact that the banks have inflated the stock market into a giant bubble over those past few years, fuelled by unconventional monetary policies that mean that the Quantitative Easing of the US and the injection of $85 billion each month into the US economy has done nothing for the US economy but over-inflate the market for the benefit of those same banks. They have become richer and the households that have withdrawn their money have had no gain whatsoever.

Interest rates that were lower than ever have made sure that they get no return on their investment and it might just as well be as good to stick the money under the mattress in the back bedroom in fact. Households are borrowing less, they’re spending less and they are investing less. Savings and bonds just bring in a paltry meager return and quite frankly hardly manage to keep up with inflation. But, households are still not prepared to invest their money and let it be whittled away by the finansters and the banksters around these days. The trust has gone.

Households: Fear of the Economy

Households: Fear of the Economy

Is it Surprising?

Hardly surprising at all when we see the employment figures (officially U3 rate is 7.3%) that are stagnating in all countries around the world. Hardly a surprise when we see the real unemployment figures (over 14.5% in the USA) and not those that are announced by the government departments. Still, one saving grace for the Obama administration in the government shutdown is that unemployment statistics are no longer going to be published as the fiasco continues of refusing to negotiate over Obamacare and the budget.

The households of the US probably learnt one thing out of the financial crisis: never to trust banks and never do anything that was unsafe financially speaking, even if that meant losing out on big gains.

10 Largest Economies

According to the Associated Press report that has just been published the world’s largest economies (USA, China, Japan, Germany, France, UK, Brazil, Russia, Italy and India) have 65% of the Gross Domestic Product of the entire world and also over 50% of the global population.

  • About $1.1 trillion has been withdrawn by households in those ten economies around the world and that is despite the growing bubble of the financial markets.
  • The markets have expanded, but the trust has gone.
  • $1.3 trillion has been invested in bond mutual funds.
  • But, interest payments have never been lower on bonds.
  • Prior to the crises household debt increased by a staggering 34%.
  • Interest rates that were at record lows following the financial crisis should have increased borrowing, but it didn’t.
  • People got rid of their debt as quickly as possible and debt per adult fell by 1% in the 10 countries named.
  • Cash holdings increased by 15% in the 5 years following the crisis (amounting to $3.3 trillion).
  • This was all the time that unemployment increased and the economy grew little.
  • Consumer spending, which amounts to 60% of GDP, only increased by 1.6% for the ten countries over that ten-year period.

The households of the world may one day get that faith back in the economy. But, it is very doubtful that they will return to their old habits. Much less can be said of the financial markets and the banks, however. They at least have done very little except repeat the age-old tradition now of bubble making.

We all know that destroying something that isn’t tangible and that is a mere feeling is extremely easy. The banks did that long ago when they destroyed the trust the people had in the economy. That’s a thing of the past today. Building up that trust will be harder today and falls short of complete failure given the amount of money that has been withdrawn from the financial markets by households. Easy to lose trust, hard to gain faith again. They should have thought at that in the banks’ back offices. Although, then again, they now have the financial markets to play with all alone. Maybe that’s exactly what they wanted.

Banksters never liked sharing and certainly don’t lend very much these days.  As the US government shutdowns enters day 7 and we know that analyses show that there will be a loss of Gross Domestic Product that amounts to roughly 0.5% for every week that it continues. GDP growth for the 2nd quarter of 2013 was estimated at 1.7% and then revised up to 2.5%. That can be kissed goodbye today. In just a few weeks because if the inability to sit down and negotiate around a table it will only take about 4 more weeks before that gets wiped out.

Trust won’t be a household word in the future any more than it is right now it would seem; and rightly so!

Roosevelt’s words hold true however even today: “More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment”.

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Professional team of writers/analysts analyzing the financial markets.

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