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Source: Reuters
When I first arrived in the US about eight years ago, I couldn't
believe how promiscuously Americans spent their greenbacks.
Okay, let me amend that to New Yorkers, but the principle holds
true. Yanks like to spend. Takeaway meals, flat screen TVs,
handheld computers that are supposedly phones as well,
skinny-legged jeans made in Cambodia. Consumption is 70% of the US
economy.
Counterbalancing this was the financial acuity that many average
Americans seemed to display on financial matters. They restructured
personal debt, amalgamated credit cards, and got lower mortgage
rates before lunchtime.
What they didn't do was stop spending; to do that, they ceased to
save.
Bearing in mind that a 401K is American slang for retirement
savings, the following information from Harper's magazine's
Harper's Index says a lot about the state of the American back
pocket:
"Average balance of a US 401K account in 1988: $62,000"
"Average balance today: $45,000"
"Percentage of all US 401K accounts that are worth less than
$10,000: 46"
And US banks remain problematic. The finance sector surged on cheap
money (blame Alan Greenspan), high risk (partially blame the repeal
of the Glass-Steagall Act under Bill Clinton, which allowed banks
to be more speculative), and greed (blame, well, everyone
greedy).
The contraction was felt from New York to Palmerston North.
Many commentators don't believe that President Obama has done
enough to
constrain
financial institutions who essentially gambled with other
people's money, then expected the Government to bail them
out.
As I read Nobel Prizewinner Paul Krugman's analysis of the
necessity of financial reform, the narrative seems very similar to
the
discovery of fecal bacteria in the self-serve fizzy drink
machines that are ubiquitous in the US. Something foul is
abreast in the sweet stuff, but no-one is able to say exactly
how.
But the debt clock is ticking. In 2010, Alice Rivlin notes in on
Bloomber, American public debt will account for 67% of the GDP. In
2007 it was 37%.
And the circular firing squad is forming. Is consumption to blame,
excessive credit, a broken financial system, a broken political
system?
No-one ever went broke predicting the downfall of the US; that's
been a constant riff ever since the country struggled and fought
its way to independence. America remains a world super power, but
military power is based on economic might. When the delis close,
the garrisons aren't far behind.
Americans must change their spending habits, or change the rules;
the only problem then is: who will buy all those takeways, flat
screen tellys, handheld gadgets and skinny legged jeans?
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