Date WIB+11 jam Currency Forecast Previous
Sun
May 3 All Day JPY Bank Holiday
8:30pm
AUD MI Inflation Gauge m/m -0.1%
9:30pm AUD ANZ Job Advertisements m/m -8.5%
9:30pm AUD HPI q/q 0.0% -0.8%
Mon
May 4 2:00am EUR German Retail Sales m/m 0.0% -0.4%
All Day GBP Bank Holiday
3:30am CHF SVME PMI 34.0 32.6
4:00am EUR Final Manufacturing PMI 36.7 36.7
4:30am EUR Sentix Investor Confidence -27.8 -35.3
10:00am USD Pending Home Sales m/m 0.1% 2.1%
10:00am USD Construction Spending m/m -1.4% -0.9%
2:00pm USD FOMC Member Lacker Speaks
All Day JPY Bank Holiday
Tentative GBP BOE Financial Stability Report
7:30pm AUD AIG Services Index 35.6
9:30pm AUD Building Approvals m/m 2.8% 7.8%
11:00pm NZD ANZ Commodity Prices m/m 1.0%
Tue
May 5 12:30am AUD Cash Rate 3.00% 3.00%
12:30am AUD RBA Rate Statement
1:45am CHF SECO Consumer Climate -26 -23
5th-9th GBP Halifax HPI m/m -1.0% -1.9%
4:30am GBP Construction PMI 31.9 30.9
5:00am EUR PPI m/m -0.5% -0.5%
10:00am USD Fed Chairman Bernanke Testifies
10:00am USD ISM Non-Manufacturing PMI 42.1 40.8
All Day JPY Bank Holiday
7:01pm GBP Nationwide Consumer Confidence 43 41
9:30pm AUD Retail Sales m/m 0.5% -2.0%
9:30pm AUD Trade Balance 1.75B 2.11B
10:30pm USD FOMC Member Yellen Speaks
11:00pm NZD Labor Cost Index q/q 0.6% 0.7%
Wed
May 6 3:00am CHF Gov Board Member Jordan Speaks
4:00am EUR Final Services PMI 43.1 43.1
4:30am GBP Services PMI 46.3 45.5
5:00am EUR Retail Sales m/m 0.1% -0.6%
5:30am GBP BRC Shop Price Index y/y 2.0%
7:30am USD Challenger Job Cuts y/y 180.7%
8:15am USD ADP Non-Farm Employment Change -644K -742K
8:30am CAD Building Permits m/m 2.6% -15.9%
10:00am CAD Ivey PMI 40.5 43.2
10:30am USD Crude Oil Inventories 4.1M
12:15pm CHF SNB Chairman Roth Speaks
4:00pm CAD BOC Gov Carney Speaks
5:30pm USD FOMC Member Yellen Speaks
6:45pm NZD Employment Change q/q -1.0% 0.9%
6:45pm NZD Unemployment Rate 5.3% 4.7%
7:30pm AUD AIG Construction Index 30.4
7:50pm JPY Monetary Base y/y 6.7% 6.9%
9:30pm AUD Employment Change -24.9K -34.7K
9:30pm AUD Unemployment Rate 5.9% 5.7%
Thu
May 7 2:45am EUR French Trade Balance -3.9B -4.1B
3:15am CHF CPI m/m 0.6% -0.3%
6:00am EUR German Factory Orders m/m -0.9% -3.5%
Tentative GBP MPC Rate Statement
7:00am GBP Official Bank Rate 0.50% 0.50%
7:45am EUR Minimum Bid Rate 1.00% 1.25%
8:30am EUR ECB Press Conference
8:30am USD Unemployment Claims 639K 631K
8:30am USD Prelim Nonfarm Productivity q/q 0.9% -0.4%
8:30am USD Prelim Unit Labor Costs q/q 2.6% 5.7%
9:15am USD FOMC Member Evans Speaks
9:30am USD Fed Chairman Bernanke Speaks
10:30am USD Natural Gas Storage 82B
Tentative USD Bank Stress Test Info
3:00pm USD Consumer Credit m/m -4.1B -7.5B
7:50pm JPY Monetary Policy Meeting Minutes
9:30pm AUD RBA Monetary Policy Statement
Fri
May 8 1:45am CHF Unemployment Rate 3.4% 3.3%
All Day EUR French Bank Holiday
2:00am EUR German Trade Balance 8.0B 8.9B
4:30am GBP PPI Input m/m 0.7% 1.0%
4:30am GBP PPI Output m/m 0.2% 0.1%
6:00am EUR German Industrial Production m/m -1.3% -2.9%
7:00am CAD Employment Change -49.7K -61.3K
7:00am CAD Unemployment Rate 8.3% 8.0%
8:15am CAD Housing Starts 140K 147K
8:30am USD Non-Farm Employment Change -600K -663K
8:30am USD Unemployment Rate 8.9% 8.5%
8:30am USD Average Hourly Earnings m/m 0.2% 0.2%
10:00am USD Wholesale Inventories m/m -1.1% -1.5%
1:00pm USD FOMC Member Lacker Speaks
1:15pm USD FOMC Member Evans Speaks
Sunday, May 3, 2009
Gold May Be ‘Off to the Races’ Above $950: Technical Analysis
(Bloomberg) -- Gold may be “off to the races” if prices break resistance levels at $950 to $960 an ounce, according to Jeffrey Rhodes, a Dubai-based trader with International Assets Holding Corp.Prices may surpass $1,200 an ounce this year, more than the record $1,032.70 reached in March 2008, Rhodes said. Gold peaked at $1,006.29 this year on Feb. 20. Gold’s support level is at about $850 an ounce, he said. Support is where buy orders may be clustered and resistance is where there may be sell orders.
“A number that would get everyone very excited would be $1,005 an ounce,” Rhodes said in an interview April 27.
Gold for immediate delivery has advanced for eight consecutive years, the longest winning streak since at least 1948. Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by gold, almost doubled in 12 months and overtook Switzerland as the world’s sixth-largest gold holding. Gold has gained 0.5 percent this year to $886.55 an ounce at the close of trading May 1.
“A number that would get everyone very excited would be $1,005 an ounce,” Rhodes said in an interview April 27.
Gold for immediate delivery has advanced for eight consecutive years, the longest winning streak since at least 1948. Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by gold, almost doubled in 12 months and overtook Switzerland as the world’s sixth-largest gold holding. Gold has gained 0.5 percent this year to $886.55 an ounce at the close of trading May 1.
New Stocks Bull Market or Just a Bear Market Rally?
By: Anthony_Cherniawski
Stock-Markets
Best Financial Markets Analysis ArticleStress tests? What stress tests? - The Federal Reserve is postponing the release of stress tests on the biggest U.S. banks while executives debate preliminary findings with examiners, according to government and industry officials.The results, originally scheduled for publication on May 4, now may not be revealed until toward the end of next week, said the people, who declined to be identified. A new release date may be announced as soon as today, they said. Regulators and bank executives are concerned about how the disclosure is handled because weaker institutions could suffer a collapse in their stock prices.
Was it Obama? Or was it the stock market rally?
Consumer confidence increased in April due to the widespread perception that PresidentObama’s economic policies will be effective in improving economic conditions. “Two-thirds of all consumers anticipated that the economic policies of the Obama administration will be effective in improving national economic conditions, with most of the gains anticipated over the next several years,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. Favorable views about the effectiveness of Obama’s policies to improve the financial situation of consumers were not as widespread, as four-in-ten consumers thought the policies would be effective in improving their own financial situation. “Consumers continued to report that their finances remained dismal and their buying plans were still on hold due to concerns about their future job and income prospects,” Curtin said.
Is this a new bull market…or just a bear market rally?
-- U.S. stocks began May on a less-than-sunny note, with major indexes sliding as investors paused to assess the previous month's surge and the U.S. economy's chances of recovering as hoped.A 33% recovery in two months will have to be digested by the market before much more gains are realized. That means a retest of the lows may come soon. The first line of demarcation will be the 50-day moving average, shown on the chart.
Treasury bonds are taking a pounding.
Treasury 10-year notes fell for a fourth day and are headed for a sixth straight weekly loss as credit markets thaw and speculation grows that the worst of the global recession may be over. The decline, which would be the longest weekly losing streak in almost two years, comes as an industry report showed manufacturing in the U.S. shrank in April at the slowest pace in seven months. The Treasury plans to sell $71 billion of notes and bonds next week, to finance a widening budget deficit, bank bailouts and fiscal recovery packages.
Japanese stocks advance but future is uncertain.
-- Japanese stocks jumped, sending the Nikkei 225 Stock Average to a near four-month high, as forecasts from Fujitsu Ltd. and Canon Inc. lifted optimism corporate earnings will recover in 2009. Electronics firms were able to cut prices and reduce unsold inventory, giving them a leg up on other manufacturing concerns. The big problem seems to be that deflation makes the cost of servicing loans higher while cutting net revenues. The future outlook is mixed. Only 40% of companies polled expect profits to rise.
Stock-Markets
Best Financial Markets Analysis ArticleStress tests? What stress tests? - The Federal Reserve is postponing the release of stress tests on the biggest U.S. banks while executives debate preliminary findings with examiners, according to government and industry officials.The results, originally scheduled for publication on May 4, now may not be revealed until toward the end of next week, said the people, who declined to be identified. A new release date may be announced as soon as today, they said. Regulators and bank executives are concerned about how the disclosure is handled because weaker institutions could suffer a collapse in their stock prices.
Was it Obama? Or was it the stock market rally?
Consumer confidence increased in April due to the widespread perception that PresidentObama’s economic policies will be effective in improving economic conditions. “Two-thirds of all consumers anticipated that the economic policies of the Obama administration will be effective in improving national economic conditions, with most of the gains anticipated over the next several years,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. Favorable views about the effectiveness of Obama’s policies to improve the financial situation of consumers were not as widespread, as four-in-ten consumers thought the policies would be effective in improving their own financial situation. “Consumers continued to report that their finances remained dismal and their buying plans were still on hold due to concerns about their future job and income prospects,” Curtin said.
Is this a new bull market…or just a bear market rally?
-- U.S. stocks began May on a less-than-sunny note, with major indexes sliding as investors paused to assess the previous month's surge and the U.S. economy's chances of recovering as hoped.A 33% recovery in two months will have to be digested by the market before much more gains are realized. That means a retest of the lows may come soon. The first line of demarcation will be the 50-day moving average, shown on the chart.
Treasury bonds are taking a pounding.
Treasury 10-year notes fell for a fourth day and are headed for a sixth straight weekly loss as credit markets thaw and speculation grows that the worst of the global recession may be over. The decline, which would be the longest weekly losing streak in almost two years, comes as an industry report showed manufacturing in the U.S. shrank in April at the slowest pace in seven months. The Treasury plans to sell $71 billion of notes and bonds next week, to finance a widening budget deficit, bank bailouts and fiscal recovery packages.
Japanese stocks advance but future is uncertain.
-- Japanese stocks jumped, sending the Nikkei 225 Stock Average to a near four-month high, as forecasts from Fujitsu Ltd. and Canon Inc. lifted optimism corporate earnings will recover in 2009. Electronics firms were able to cut prices and reduce unsold inventory, giving them a leg up on other manufacturing concerns. The big problem seems to be that deflation makes the cost of servicing loans higher while cutting net revenues. The future outlook is mixed. Only 40% of companies polled expect profits to rise.
Economic Recovery Plan Doomed to Fail as Optimists Fuel Bear Market Rally
By: Money_and_Markets
Stock-Markets
Best Financial Markets Analysis ArticleBryan Rich writes: It’s important to understand the global investment and economic environment to understand what’s going on with currencies. And right now, there’s limited visibility of what lies ahead for world economies …Do things return to normal? OR has a major adjustment taken place? And in the case of the latter, are we in for a sustainably lower standard of living, sustainably lower asset prices and sustainably lower levels of certainty? Many in the optimistic camp believe “recovery” is a return to normalcy. This means a resurgence in home values, climbing stock markets, a healthy job market, strong incomes, a return to easy credit … all the things Americans have grown accustomed to over the years of bullish equity markets and strong economic conditions. In short, the optimists expect a full restoration of lost wealth.
The optimists have fueled a bear market rally and expect a full restoration of lost wealth.
And why not; it’s in everyone’s best interest. This type of interest-motivated sentiment has fueled the continuation of a bear market rally in stocks and has relieved pressure on risky assets in general.All of the advertised “glimmers of hope” have a common theme … confidence. And the optimists are making the most of each one of them that comes along. Recent examples include:
* “Jump in consumer confidence pulls stocks from lows”
* “European business and consumer confidence bounces back”
* “UK consumer confidence highest in a year”
* “Australian business confidence rose strongly”
* “Signs of Possible Economy Bottoming Out … pointing to economic indicators, like sentiment indexes, as well as rising U.S. consumer confidence.”
In the trading world we call this “talking your own book.” When traders are trying to bolster their own self-interest, they tend to acknowledge evidence that only supports their views, and they like to spread that chatter among their web of influence.
But where does all of this growing confidence come from?The last I checked, the same problems that are at the core of the crisis not only still exist, but are worsening …
* Consumers have purged 20 percent of their net worth since the second quarter of 2007,
* The housing market, which fueled the crisis, is still printing new lows and foreclosure rates are still rising aggressively,
* Unemployment is still rising,
* And time is passing — which makes all of the aforementioned problems dramatically more threatening.
It’s clear to me that because of the structural problems that exist in the economy, small improvements in the rate of change of economic deterioration are meaningless. The real risks in this environment are major negative economic EVENTS. When I say events I mean things like: Another major bank failure, a major debt default, global political controversy or protectionist activity to name a few.Only when the risks of these types of events have clearly passed can confidence sustainably improve. Until then, the exposure to those asset classes deemed risky, like stocks, can carry heavy penalties.
The Recovery Plan: Fight Fire With Gasoline
Former Fed Chairman, Alan Greenspan described the current economic crisis as a “once in a century” event. And the current administration’s plan to deal with a crisis created by excessive debt is to create even more debt.Here’s the logic: When we return to normal (or trend) growth, the massive new debt can then be absorbed over time by new growth.
So nothing to be worried about … right?
Wrong. This solution assumes that recovery arrives before new debt creation gets overwhelmingly and destructively massive. So can the government alone create sustainable growth out of thin air? Of course not.Recessions normally end from improvements in exports. But that won’t happen until domestic economies turnaround.
Then what will lead us to growth?
Recessions normally end from improvements in exports. And that takes help from the rest of the world. However, meaningful demand for foreign products typically comes in the context of a solid domestic economy. This is not the case for world economies this time around.While our trade balance has swung from a massive deficit to a smaller deficit over the past seven months, it hasn’t been because of stellar exports. Rather, it’s been because our imports are plunging.
Confidence, Likely Fleeting
Volatility, the indication of market uncertainty, has skyrocketed since August of last year. And though the benchmarks for gauging volatility have declined over the past several months, they remain above the levels seen when the Fed rescued Bear Stearns. This means the pain-meter for asset class investments will remain high, which is not good for confidence. In fact, it means the volatility of confidence is likely to be high, too.Until the level of certainty creates the necessary comfort for consumers to return to their normal spending patterns, this existing high risk environment puts the critical consumption component that’s so important to economic activity under pressure.
So How Do Currency Traders Translate This?
In the global currency markets, evaluating opportunities is all about relativity. It’s an assessment of which currency will perform better — relative to another.
Right now, THE driver of currency values is risk appetite. In a world of economic decline and uncertain outcomes, an aversion to risk remains the overwhelming trend. And that trend continues to favor the U.S. dollar as global capital seeks to align with the largest economy in the world.In every trend there is an ebb and flow of impulsive and corrective moves along the way as you can see in the chart below …
Stock-Markets
Best Financial Markets Analysis ArticleBryan Rich writes: It’s important to understand the global investment and economic environment to understand what’s going on with currencies. And right now, there’s limited visibility of what lies ahead for world economies …Do things return to normal? OR has a major adjustment taken place? And in the case of the latter, are we in for a sustainably lower standard of living, sustainably lower asset prices and sustainably lower levels of certainty? Many in the optimistic camp believe “recovery” is a return to normalcy. This means a resurgence in home values, climbing stock markets, a healthy job market, strong incomes, a return to easy credit … all the things Americans have grown accustomed to over the years of bullish equity markets and strong economic conditions. In short, the optimists expect a full restoration of lost wealth.
The optimists have fueled a bear market rally and expect a full restoration of lost wealth.
And why not; it’s in everyone’s best interest. This type of interest-motivated sentiment has fueled the continuation of a bear market rally in stocks and has relieved pressure on risky assets in general.All of the advertised “glimmers of hope” have a common theme … confidence. And the optimists are making the most of each one of them that comes along. Recent examples include:
* “Jump in consumer confidence pulls stocks from lows”
* “European business and consumer confidence bounces back”
* “UK consumer confidence highest in a year”
* “Australian business confidence rose strongly”
* “Signs of Possible Economy Bottoming Out … pointing to economic indicators, like sentiment indexes, as well as rising U.S. consumer confidence.”
In the trading world we call this “talking your own book.” When traders are trying to bolster their own self-interest, they tend to acknowledge evidence that only supports their views, and they like to spread that chatter among their web of influence.
But where does all of this growing confidence come from?The last I checked, the same problems that are at the core of the crisis not only still exist, but are worsening …
* Consumers have purged 20 percent of their net worth since the second quarter of 2007,
* The housing market, which fueled the crisis, is still printing new lows and foreclosure rates are still rising aggressively,
* Unemployment is still rising,
* And time is passing — which makes all of the aforementioned problems dramatically more threatening.
It’s clear to me that because of the structural problems that exist in the economy, small improvements in the rate of change of economic deterioration are meaningless. The real risks in this environment are major negative economic EVENTS. When I say events I mean things like: Another major bank failure, a major debt default, global political controversy or protectionist activity to name a few.Only when the risks of these types of events have clearly passed can confidence sustainably improve. Until then, the exposure to those asset classes deemed risky, like stocks, can carry heavy penalties.
The Recovery Plan: Fight Fire With Gasoline
Former Fed Chairman, Alan Greenspan described the current economic crisis as a “once in a century” event. And the current administration’s plan to deal with a crisis created by excessive debt is to create even more debt.Here’s the logic: When we return to normal (or trend) growth, the massive new debt can then be absorbed over time by new growth.
So nothing to be worried about … right?
Wrong. This solution assumes that recovery arrives before new debt creation gets overwhelmingly and destructively massive. So can the government alone create sustainable growth out of thin air? Of course not.Recessions normally end from improvements in exports. But that won’t happen until domestic economies turnaround.
Then what will lead us to growth?
Recessions normally end from improvements in exports. And that takes help from the rest of the world. However, meaningful demand for foreign products typically comes in the context of a solid domestic economy. This is not the case for world economies this time around.While our trade balance has swung from a massive deficit to a smaller deficit over the past seven months, it hasn’t been because of stellar exports. Rather, it’s been because our imports are plunging.
Confidence, Likely Fleeting
Volatility, the indication of market uncertainty, has skyrocketed since August of last year. And though the benchmarks for gauging volatility have declined over the past several months, they remain above the levels seen when the Fed rescued Bear Stearns. This means the pain-meter for asset class investments will remain high, which is not good for confidence. In fact, it means the volatility of confidence is likely to be high, too.Until the level of certainty creates the necessary comfort for consumers to return to their normal spending patterns, this existing high risk environment puts the critical consumption component that’s so important to economic activity under pressure.
So How Do Currency Traders Translate This?
In the global currency markets, evaluating opportunities is all about relativity. It’s an assessment of which currency will perform better — relative to another.
Right now, THE driver of currency values is risk appetite. In a world of economic decline and uncertain outcomes, an aversion to risk remains the overwhelming trend. And that trend continues to favor the U.S. dollar as global capital seeks to align with the largest economy in the world.In every trend there is an ebb and flow of impulsive and corrective moves along the way as you can see in the chart below …
The Great Asset Bubble Built on Debt
By: Dr_Martenson
Economics
Diamond Rated - Best Financial Markets Analysis ArticleWhere are we going, and what lies next? To address these questions, we need to know how we got here in the first place.I want to share with you an interesting observation that I think will provide great clarity and insight into our current predicament, as well as indicate that our recovery, such as it is, will be protracted and incomplete.It begins with our old friend, the Debt-to-GDP chart (below), with our long-term average circled in green and our recent debt experiment in red. Today we're going to focus on what happened there in the 1980s, when we began our long climb to our current levels of over-indebtedness.
Now, this is not a partisan statement by any means, because both parties played along, but Ronald Reagan's terms in office (1981-1989) are marked by the blue box. It was during his tenure that we initially began our experiment with ever-larger piles of debt. Somewhere in the early 1980s, we clearly broke out of a long-established normal range of debt and into new territory. Something happened there, but what?Before I explain, let's make a few additional observations. What else was in play in the same timeframe that debt was exploding? First, we must remember the US personal savings rate, which, as noted in the Crash Course, was inversely correlated (to a very high degree) during the same timeframe. As debt was climbing, savings were falling in lockstep.
Note in the image above that the erosion in savings began sometime in the early 1980s, slumping inexorably towards zero the rest of the way. But I want to be careful here in how I associate the first chart (above, the Debt-to-GDP chart) with this chart of savings. Certainly, they appear highly correlated, but this is not the same as saying one is the cause of the other. Correlation is not causation, and we should always endeavor to be careful to distinguish the two. Still, there is a very tantalizing symmetry between the two that bears exploration.If I were to speculate, I would guess that the erosion in personal savings was not tied directly to debt, but to a sense of wealth and well-being. The Fed has produced plenty of research papers investigating something called "the wealth effect," which is the degree of additional consumer spending that can be estimated to occur as a direct consequence of rising asset prices.For example, the Fed estimates that for every dollar rise in someone's stock portfolio, an additional 7 cents of consumer spending will result. The idea here is that people who perceive themselves to be wealthier will spend more than people who do not. That seems like a fairly defensible notion.
The wealth effect is a theory that has its fair share of critics, but it seems possible that people whose assets are rising steadily in price might feel less and less compelled to save money in the bank. Additionally, we could also consider that people with expanded access to credit for managing their cash flow might perceive less of a need to maintain a cash buffer in the form of savings. Credit becomes the buffer, especially if it's ubiquitous and easy to get.Taken together, the decline in savings shown by the above chart could be attributed to an explosion of credit and generally rising asset prices. Perhaps we could also speculate that the federal government set a bad example during this same period of time and thereby laid the cultural foundation for spending and living "in the moment." Regardless of the reason(s), this phenomenon of zero savings has set the stage for what comes next, and we'll be tying this lack of savings back into the story a bit further down.This next chart of total credit market debt illustrates the rapid and unprecedented expansion of debt over the past 30 years. This chart is really just a means of viewing the debt portion only of the Debt-to-GDP chart since it's the same data. But here it's easier to see the slight ripples in the data in the mid-1990's that led Alan Greenspan to panic and open the credit floodgates that are directly responsible for much of the condition in which we currently find ourselves.
Economics
Diamond Rated - Best Financial Markets Analysis ArticleWhere are we going, and what lies next? To address these questions, we need to know how we got here in the first place.I want to share with you an interesting observation that I think will provide great clarity and insight into our current predicament, as well as indicate that our recovery, such as it is, will be protracted and incomplete.It begins with our old friend, the Debt-to-GDP chart (below), with our long-term average circled in green and our recent debt experiment in red. Today we're going to focus on what happened there in the 1980s, when we began our long climb to our current levels of over-indebtedness.
Now, this is not a partisan statement by any means, because both parties played along, but Ronald Reagan's terms in office (1981-1989) are marked by the blue box. It was during his tenure that we initially began our experiment with ever-larger piles of debt. Somewhere in the early 1980s, we clearly broke out of a long-established normal range of debt and into new territory. Something happened there, but what?Before I explain, let's make a few additional observations. What else was in play in the same timeframe that debt was exploding? First, we must remember the US personal savings rate, which, as noted in the Crash Course, was inversely correlated (to a very high degree) during the same timeframe. As debt was climbing, savings were falling in lockstep.
Note in the image above that the erosion in savings began sometime in the early 1980s, slumping inexorably towards zero the rest of the way. But I want to be careful here in how I associate the first chart (above, the Debt-to-GDP chart) with this chart of savings. Certainly, they appear highly correlated, but this is not the same as saying one is the cause of the other. Correlation is not causation, and we should always endeavor to be careful to distinguish the two. Still, there is a very tantalizing symmetry between the two that bears exploration.If I were to speculate, I would guess that the erosion in personal savings was not tied directly to debt, but to a sense of wealth and well-being. The Fed has produced plenty of research papers investigating something called "the wealth effect," which is the degree of additional consumer spending that can be estimated to occur as a direct consequence of rising asset prices.For example, the Fed estimates that for every dollar rise in someone's stock portfolio, an additional 7 cents of consumer spending will result. The idea here is that people who perceive themselves to be wealthier will spend more than people who do not. That seems like a fairly defensible notion.
The wealth effect is a theory that has its fair share of critics, but it seems possible that people whose assets are rising steadily in price might feel less and less compelled to save money in the bank. Additionally, we could also consider that people with expanded access to credit for managing their cash flow might perceive less of a need to maintain a cash buffer in the form of savings. Credit becomes the buffer, especially if it's ubiquitous and easy to get.Taken together, the decline in savings shown by the above chart could be attributed to an explosion of credit and generally rising asset prices. Perhaps we could also speculate that the federal government set a bad example during this same period of time and thereby laid the cultural foundation for spending and living "in the moment." Regardless of the reason(s), this phenomenon of zero savings has set the stage for what comes next, and we'll be tying this lack of savings back into the story a bit further down.This next chart of total credit market debt illustrates the rapid and unprecedented expansion of debt over the past 30 years. This chart is really just a means of viewing the debt portion only of the Debt-to-GDP chart since it's the same data. But here it's easier to see the slight ripples in the data in the mid-1990's that led Alan Greenspan to panic and open the credit floodgates that are directly responsible for much of the condition in which we currently find ourselves.
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