All across the country economic and financial minds are befuddled.
The cash being hoarded by individuals, businesses and superannuation funds is apparently not making sense.
For the businesses, there are two options: return the money to shareholders or look for acquisitions.
For the superannuation funds, that cash will eventually flow into various investments.
For the individuals, well, that’s what has many people confused.
The relentlessly positive Commsec economists still believe the consumer is spring loaded and ready to spend – they just don’t know when.
Gerry Harvey is having another whinge because no one is spending; suggesting savers will be the Grinch this Christmas.
And in the midst of nonexistent credit growth, the banks are fighting for the few people wanting a loan.
Unfortunately, much of the developed world is over-indebted and it seems Australians – with the capacity to save – have caught on to this fact, to the tune of $50 billion in savings.
Of course this is the source of much frustration for government and business, we love comfort and western economic policy has long been obsessed with avoiding downturns.
This has played a significant part in the ongoing economic crisis.
Slashing interest rates and stimulus packages only encouraged more debt, while at the same time papering over bad investments.
There was a period – yes in my lifetime – when debt was treated with great caution, possibly due to the lingering influence of the generation that lived through the great depression.
It appears the economic crisis has had a similar effect on those now hording their cash.
Surveys from research firm, CoreData, have shown people believe share markets are still too volatile and property is still overpriced.
While investment managers can point to the long term returns of cash vs. markets; real estate agents can point to discounted houses and retailers point to great deals, those cashed up aren’t being swayed.
For now this might be the new normal.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL / ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. Need help with your financial your financial future, we think we’re Australia’s top financial adviser.
