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‘More Americans living on the edge’
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Posted on Nov 10 2005
More Americans are spending more than what they are earning, resulting in more debts and zero savings, according to the head of fund management firm that handles the NMI Retirement Fund’s investments.
Atalanta Sosnoff president Craig Steinberg, in a presentation during the NMI Retirement Fund’s money managers meeting at Aqua Resort Club Tuesday, said that, compared to other countries, U.S. personal consumption rate is up at 71 percent.
He said Europe’s rate is at 58 percent, Japan is 55 percent, and China is 42 percent.
At the same time, the U.S. “went to negative savings” recently.
“A lot of spending has been debt-inspired. People are incurring debts through loans [and] credit cards,” he said.
Atalanta Sosnoff vice president Jim Staub added that “everybody is living on the edge.”
Consumer spending, according to Steinberg, is a biggest part of the economy.
An online financial analysis made by the Daily Reckoning website said that the U.S. is not liquid as it thinks it is since “liquid is a person who has savings.”
The increased spending due to borrowing, the analysis said, should not be applauded since it only creates an appearance of great liquidity, which is actually the result of “highly leveraged asset prices.”
Since the liquidity is based on credit—not cash—it could turn into “a savage deflation tomorrow.”
“This is an illusion, this liquidity argument. It works as long as the system of inflating asset prices functions. But when it stops, liquidity is gone. If there is a lot of leverage in the market, it can collapse,” said the analysis from the Daily Reckoning.
Meantime, NMI Fund board chair Joseph Reyes said the Fund’s investments “are so diversified” that it will not be affected by a single trend in the market.
“Some of our money managers put funds in consumer goods. But the portfolio is diversified. We have a balanced portfolio,” he said.
