The Free Press, Mankato, MN

State, national news

October 6, 2013

Families hoard cash five years after crisis

(Continued)

■ HOARDING CASH: 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, slightly more than they did in the five years before, according to the Organization for Economic Cooperation and Development.

The growth of cash is remarkable because millions more were unemployed, wages grew slowly and people diverted billions to pay down their debts. They also poured money into bank accounts knowing they would earn little interest on their deposits, often too little to keep up with inflation.

■ SPENDING SLUMP: Cutting debt and saving more may be good in the long term, but to do that, people have had to rein in their spending. 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.

Consumer spending is critically important because it accounts for more than 60 percent of GDP.

■ DEVELOPING WORLD NOT HELPING ENOUGH: When the financial crisis hit, the major developed countries looked to the developing world to take over in powering global growth. The four big developing countries — Brazil, Russia, India and China — recovered quickly from the crisis. But the potential of the BRIC countries, as they are known, was overrated. Although they have 80 percent of the people, they accounted for only 22 percent of consumer spending in the 10 biggest countries last year, according to Haver Analytics, a research firm. This year, their economies are stumbling.

Consumers around the world will eventually shake their fears, of course, and loosen the hold on their money. But few economists expect them to snap back to their old ways.

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