Companies, and Consumers, the Critical Question in the Coming Year Is This
__
SPECIAY. EDITION--- - • ISSUES 2011
ESSAYSBY:JACQUESATTALI• MOHAMEDEL-ERIAN•KISHOREMAHBUBANI. STEPHENROACHJOSEPHSTIGLITZ
::EY HE 1 TO
FORCOUNTRIES, COMPANIES,AND CONSUMERS,THE CRITICALQUESTION INTHE COMING YEARISTHIS: CAN YOUHANDLE YOUR DEBT?
Albania Lek950 France €6.50 Kuwait 60 1.90 Norway NOr55.00 S. Africa R 47.95 4 1 Austria €6.50 Germany €6.50 Latvia 56.95 Oman DII2.40 Spain €6.50 Bahrain 0132.30 Gibraltar £3.95 Lebanon 118000 Poland (incLtax) P1610.50 Sweden S6r 58.00 Belgium €6.50 Greece €6.90 Lithuania $6.95 Portugal €6.50 Switzerland CHF18.50 Bulgaria DCL6.00 Hungary Ft. 1800.00 Luxembourg €6.56 Qatar flIt 24.00 Syria SYP250.00 Croatia ON32.08 Iceland NOR525.00 Malta €6.56 Romania $6.95 Turkey TI 6.50 Cyprus €6.00 Israel NIS25.00 Mauritius Its 95.06 Russia $6.95 UAE Oh24.00 Czech Republic £26217.00 Italy €6.96 Montenegro DIN350 S. Arabia SR24.00 United Kingdom £3.05 Denmark DOr45.00 Jordan JO 4.30 Morocco OH60.06 Serbia DIN350 Egypt E€21.00 Kazakhstan $6.95 Netherlands €6.50 Slovakia €6.50 Finland €6.50 Kenya Shs 450 Nigeria N 450.00 Slovenia €5.00 globe’s
Now The for
the to dominated held cent with 70 many What banks banking land
crush try’s There
After currency another
in from
rock is
currencies, and soundly yes, tal
18 During
be
how
percent
Yet What a
one Swiss THE BY Did
assets
of they’re
deep is frightened.
U.S.
UBS
back to of the
in worst economy
a were everyone
were the
to STEFAN
Switzerland’s
of today, flooding Swiss
severe small
the
NEWSWEEK
the
bail regulate the
commercial had crisis. IMF.
recession
the capitalized
worth
of and by Swiss
are
into
far
Swiss
setting
scary
financial-sector
global
GDP). nation financial
and
world’s
Credit more
out
little blowout, too
among
THEIL
outsize
Swiss knew The
right an into
Capital
their franc Right
holdings
parallels big
both
in faced
with
incredible the
tempest.
and No reason
SPECIAL
country’s Suisse
Switzerland
GDP
the strongest
big banks’ for
any banks.
the
banks. was panic
along
one
gold
and
on an Iceland
global
Credit
flight tiny
one
country
banks.
globe’s
independent
(compared life were
than
knew
full-blown
to
that
and
blowups.
the
standard SWISS
The
assets of
ISSUE
Switzer 680
with
Iceland,
It’s
of
support banks,
reserve
would 2008,
banks.
is
toxic. UBS,
coun most
Suisse these
how per
franc
Capi the
most now
a
is
and,
of
it.
far
a
cry
Reserve that a
global Germany, cians
each losses. of
tries be any
bank the
During
ber collapse
on lem UBS,
than the Swiss part
where the waited
problems together shaky
on
What
previously
able
from
Second, a
worry
2008,
shows
country’s month
rest. banks—with sharing
plan
that central
were
fight of
four
the
financial
And economy.
to
the
banking
in
is did
of
until UBS’s
the
pay
That’s to
messy another
tighter the
worst
faster
to Europe Lehman that still
lull
times
phantom
the few seems
deal unlike
the the linger. bank U.S.,
back
Swiss
undisclosed
the
in
regulators
Swiss assets Switzerland
pumping
and
unlike signs
euro,
bailouts of with crisis, When and the
the
Swiss
reins a
last to
where
or its epic
swiftly Brothers many
Switzerland’s
balance
were
tougher
summer
bring
do mortgage speculators
size
Washington, troubled debts.
and
there
of
minute
authorities
disaster
victim on where
right?
decided
that
of hard money the healing.
of
and
recapitalized
fresh nationalized
toxic-asset
their
would sheet was
in than
the
before
the
Federal
left
For
assets Septem
to at
of sector
central politi
struck, coun
never
news
most.
entire
prob work into
banks
more
many
stitch and
one,
the
early
else not Or who
the
at
wouldn’t
future
business ultimately
global banks emerging,
rules—and helps most wealthy
their
are ward ambitious
In
stricter.
just fortunes.
important
financial
have
win crises
by
who
just
as
about
be
the
the
the to
47-year-old
are
well.
and let good
New
protect
adhere
Swiss
perception
system
trust
Swiss
every customers:
therefore
bailouts,
for
With
plans
to
of National taxpayers
bankers the
area, only
much
chief,
Switzerland’s trust
pushed banks’
that
but
sounder—
slowly
the
the
tougher
manage
Philipp in would
Bank’s
global Swiss
Swiss
from
own
the
for
re Hildebrand, will require UBS and proposed new rules that would force against individual countries “over Credit Suisse each to hold 19 percent banks to divide their business among reacting” to the financial crisis. Some of their total assets in capital to cover separate units that could be liquidated countries worry that tough, Swiss- potential losses—almost three times in a crisis without sinking the mother style rules will put their own banks at the new global standard of 7 per ship—something that banks like Credit a disadvantage; for some of the weak cent that will be phased in by 2019. Suisse are already beginning to imple est banks in Germany or the United Swiss banks are also required to hold ment. Here, too, Switzerland is far Kingdom, new requirements to raise more cash to prevent bank runs, and ahead of the pack. capital might require yet another infu in 2009 were among the first to fol You’d think Hildebrand would be sion of taxpayer funds. Now that the low new guidelines regulating execu getting more credit for safeguarding crisis is starting to recede into mem tive pay and bonuses—widely seen as Swiss banking’s future. Instead, the ory, the pressure to regulate may an incentive to take excessive risks. Swiss business press has accused him weaken. Yet if the fast return to sta Above all, Hildebrand has sworn that of being internationally isolated. The bility of the country’s banks, econo never again should taxpayers be held Institute of International Finance, an my, and currency is any lesson, the hostage to banks that are “too big to organization that represents the world’s world could do worse than follow fail.” To that effect, regulators have largest banks, has repeatedly warned Switzerland’s lead.
NEWSWEEK.COM 19 question—once How economies oping forward: sis.
ing are
are state like ment engine
20
AMERICA’S How
BY Ill
pushing
taxes Unfortunately,
waffling
Greece
spending
KATIE
nations—now bonds
will
NEWSWEEK
European
can
despite
as Economy
and prop
government
BAKER
between and they
to
considered
Spain
up a
try widespread
state
slowly
country there’s governments to
their
weighs
SPECIAL to
are
promises
jump-start
assets
limping
recover
looking
little
the escape
heavily Cure
voter
in
ISSUE
agreement purview
to
the such
from economies.
to
growth. slashing
from
cut discontent.
China
on
hopes
as
the
budgets
the
Germany crippling
of
global
to Meanwhile,
as
spending
that
world’s
struggling
buy
to
Japan’s
Asia’s and
the
financial
their
and debt?
advanced
best
yet and
govern nations leaders Britain
growth
devel
This more
rais
way
cri
in economy
icit on
Prize NEWSWEEK its belt on urge country’s
Nowhere
the
The
whether
way
and
the
tightening.
that
U.S.
winner
issue
on other
to
swept
America’s
The
health; President
sake
is America’s
is asked
the
Joseph side
midterm
a
but
Republicans
But
critical question
Morgan
of
two also
debt Obama’s regardless
the Stiglitz
leaders
elections,
for
leading
one
must coin,
more
Stanley’s
that
for argues
into
calls can
shrink, advising
relevant of
of
America’s
come
in
Congress,
their for
the
Stephen that which
further
entire
and
to
differences,
government yet
the
a
soon—not consensus public
future.
more
have U.S. global
Roach to
stimulus
weigh
needs contested
anger
thrown
To
economy.
comes
both
to
only
on
answer spending.
in:
to over focus
the
writers
doubt for spend Nobel
down
than
def
the
the
on
it, TEDA
development In
two In savvy for and has the
Technological development invest bid Gulf—is of its China’s
have
Special
The Beautifully form Samsung, High
International automotive, of investment What and The tech a The The Base for computer Medicine the Center
R&D
Beijing,
most a the wide
built for world,
sectors,
decades,
enhances
host
biomedicine companies
Tianjin
TEDA infrastructure Tianjin new last “a
in a incubator,
and projects.
investors’
Tech draws
long-time
virtual
promising
successful. the Advertising range China—it’s a
provides
of heart
designed,
The
strong,
between
materials,
National
Motorola,
is Service
including
Center leading-edge
nation’s
University value
China International
Hub
working them:
enclave biomedical,
R&D
Development question
heavy-hitters—some
of
who’s
that attention—and
home
state-of-the-art
business- ecu-friendly
leader, and a
of future.” and
of
and
Outsourcing
Tianjin, Not
that
TEDA’s multifunction Computer
where
largest petrochemicals Feature
who
have
$57 Novo
zones: electronics
in
to
the
to Science manufacturing the
its
long is
supports Northern
speed
Deng
billion—come
no firms of research machinery
Joint to life largest already
Today,
impressive
Nordisk, China’s
TEDA economic
leading-edge Area
after
longer invest.
I sciences. planet’s
Virus
Xiaoping,
from
up Park,
Academy
Park Financial
winning
Tianjin
and
incubators
that (TEDA)—set Internet TEDA
accelerator China
set :
the
sixth
projects
Tinghsin
An whetherto Emergency 5,000
and
for around A
manufacturing, houses
telecommunications,
up
roster development promise
lab-to-pharmacy
And
innovative
was
instance, largest
from Street is
food
shop predicted
it.
of I of
firm,
making
multinationals. Promise
fastest-growing
like Tianjin
the
established
Biotechnology and of them,
China’s
and
Economic-Technological
for a
and
atTEDA—Toyota, 128
is Tencent resources,
wide
the city,
Hi-tech
Response
accelerators.
other being
many
is
beverages. a km.
with
Economic-
that
National a
and
strong zone Super-
range
new
major
southeast
high-end
fulfilled.
others—
Promotion Digital. a
process it
in the
total
including would and
energy Center.
1984,
and
high
Bohai
Nano
Fulfilled
resources, ideas In World increasing TEDA Champions World-class
supply-chain time highways for old International TEDA and
services. there. community financial-services
TEDA and International economy
can home
blocks 18-hole On countries luxury Center, chairman into said services, innovation,
blueprint bound For
addition,
air
Beijing-Tianjin
the
bonded
more be Binhai
between
become
its earlier
boasts
Economic has
and
Soccer On
to
offer
hotels, found
horizon
next to North
golf
Binhai
information Third and creating
grasp also
number
and water
oftheTEDA fulfill, at TEDA
Financial (a.k.a.
that this
other a
create logistics
course, quarter-century, management Airport a
Stadium,
Cardiovascular reality.
transportation on the Logistics comfortable created
China’s Development malls
regions.
new
Avenue
University
the
for International is year, Forum’s
transport.
meets
offers brilliantly.
Nanhai the
entities
two
Inter-city
world-class an
of
TEDA:
a one
stage’ initiative
and Guangzhou
about
botanical Street What’s
and
better “Summer major TEDA
park atmosphere
tallest
a cities
shopping
Administrative
a
every
residents
affordable
beautifully
Second
office variety
Road. Tianjin
&
A like
Town TEDA, offer
of
That’s
And to are home
will
international that’s
new High-speed investment more, Lifestyle
to
skyscraper.
Hospital. of systems,
Convention need
the
the there’s
resources,
gardens
about
towers, made
And the “seize Davos”). million
a
development a
go
of draws
Port Annual financial-services
and
malls,
wealth
will a TEDA TEDA to local as
TEDA where
institutes,
than industrial to
for promise—one
designed,
smartly
residents sophisticated
easy, much provide Beijing.TEDA’s
http:f/www.teda.gov.cn. find 30 opportunities, world’s Area.
The including Commission, and
those
citizens—a from export-processing including
and
restaurants
Investment
Library
environment, Train, those
is
And
minutes. Meeting
of
as
new
meetings,
with
& everything
also TEDA
thanks
over
essential
more well. other
Tianjin’s planned Exhibition
who
parks as
as
The TEDA
convenient
and eco-friendly from which ideas
of
the
its
and
TEDA well Another
140
the
Promenade
Shanghai, the Logistics
to of Tianjin
25 green live city to
draw that and labor
area
site smartest
where
and over
Service the
such are
He come. the
research two-year- as innovative engage
over intellectual
business CTF cuts universities
residential
from
launches and
offer ofTianjin,
Center, of TEDA more
its
Shushan,
with TEDA nurtured.
pubs.
a New
amenities pool
30
benefit:
Binhai as
Binhai
travel an options grander
those zone 10
10
and work
As
better Center
the
in is
is
the
An
the The
BY DEBT?
person, of Spend, rate, of I projects age, you
be will
generate Even debt, financial
which the years. tor especially thinking: New were hundreds hindsight: of
try’s lic of
programs of transformed
sive there Millions
22 services,
rnagine
projects This
money
the
JOSEPH
Right
foolish
the the
projects.
has
U.S.,
be
can yield
say
excess
Orleans’s
borrowing if
needed
crumbling
list
The
Way
is Internet—an returns
the
able America
been
is
you
will
2.5
NEWSWEEK
now high never
position.
the
are
insufficient while of a
returns
at
large
to of that exactly
they
high
that big
few percent.
capacity
E.
to
America’s
do
already And backlog Spend,
starved a working billions. pass
the the
returns
borrow is
STIGLITZ
winners.
you
on levees
be low, billion worse,
have Out
millions
yourself
led because
returns
economy. not
U.S.
finds for
it’s
infrastructure;
of government
up sure
the
know
to
You
in
innovation
long-term
SPECIAL
long
have
of 20
of projects a
not will
economy
would
demand That substantial this
part
dollars
the
most some
the
predicament
matter of
good itself
investments
which
are
more
percent. have
Yet
the as
been
just
will,
improve Spend.
private
considerable
opportunity.
development
time
a these
urgent not
bettei you
public
have
projects
business-
a
ISSUE to
today.
are
the
that
at
on
has projects backlog of
research for
interest
that
wishful
because
rebuild
would the
Some unem sector. sums levees
aver
saved
coun 20/20
think
your
pub
mas
their and
will
sec
has
top
for
In
in
is
ployed.
economy ting and
situation markets,
private working self-correcting in at
sure reducing tion all
monetary accept ting Reserve
The
Even best,
the the
unmet
idle.
emerges,
the
on
more
government
economy
financial
sector’s
Plants
weak.
wages
economy
free
has It
confronting
by
when
at
America’s
policy. is needs,
themselves,
difficult. all:
shown
a
marketers it
Indeed,
nor sign
and
and
there
will
restorative
all
puts
crisis
but
into
But
efficient.
intervention
of
the
prices,
equipment make
greater
huge
America
are
that
a
downward a
they
the
malfunctioning
taught excess
mess
may
idle
have
the
is
indebtedness
U.S. and
powers
may
So,
skill
exactly
be
resources
process
than
today.
come
capacity
us
through are
if
too,
neither
Federal
not
in
defla
pres
pull-
that
are,
sit
get the
the
be
of’ to
ing
reignited weakness likely
in excess liquidity
ing where and bubbles cies.
to the economies priming debatable; now
ing lic
What
the
restore
it
economy
investment
for
finding
on
should The
out.
U.S. to
it economic
the
high-return
works and wreaks
isn’t
pumping
is
do Lower
to
the of
investment
that
economy.
those
safest be
required
by
health.
so,
pushing
the
going
self-evident.
U.S.
in
central
spending
it
interest
havoc
capacity.
given
in
banking
more
hasn’t and
of
and
emerging
into
investments.
cheap
Rather,
up
hether
is banks
by
highest
normal
the
and
rates
other
been
new
more
their
creating
The will
system
money
continued
is
this
it
have
markets, are
increase lending
Western flood working
unlikely returns,
curren
times is
spend
pump
look
Pub
new
and into
not
not
of
is short GDP—and doesn’t
reduced. sure any ment on pay projects in higher likely
style States number
yield point is Successful
To
a
just
investment
growth
gusher; the
that
malaise in
term
be to
high
alternative
remains take
returns,
taxes, a
current
of
failures.
the
will, Assuming
sure,
few
and
years.
tax
investments,
in
a
most,
returns,
long-term
with
very
a
GDP
years.
is
the of
revenues—in return
not
paying
cost
mired
more
But
in
course,
high excess
long.
is
goes
every that
fact,
of
The
not
that
and
of
than national
return
in
for interest.
For
to
only
like
20
are capacity
every
increasingly
yield
a project
the
critics
the
themselves
the
percent
enough
Japanese-
dry
the
both
5
to
govern
percent
oil
U.S.,
debt United
Many
make much
holes.
Inter-
for
well
will
will
the
of
to
is
it
a
net, witness Keep public resources sector
ing to average,
even (an tion us the public incomes this, raise there of
The
pay
spending.
into
has
more
economic
admittedly
considering
higher. in they
their
may hack
in
benefits yielded
sectors
the
investments
mind,
in
the
and
than
the
engineered
will
consumption the
be
crisis), what
massive
tax
If
run-up
a
dynamism
too, past, make
far
feel
individuals
large
both
revenues, questionable
is
of
the
higher
they
borrowed. that
more
government
spending
up
will
behavior “multiplier”
misallocation to
make
by
the
for will
today.
the
than
confident
unleashed our
and
raise
the
are private
realize
mistakes;
crisis.
financial
required
assump
knowing
failures.
In
may
that
rational
spend
future
short,
effect
and
that
and
On
led
be
by
of
WORK
A IN
higher.
in will ers
Hal will serious
than unemployment in
economy money and And ment
on like benefits
public close sibility
but whose Unemployment
future—are the with
their cation will sick?
aging JOB
increasing and investments, society’s our
have
5TJGLITZ and
Markets, Economy. University, NEW
The
Naturally, high
the
This,
growth a will
be
education
rosy
FAIR WANTED
behind
as
the
the spending this enter return they
YORK.
long-term
budget mounting
our
Will
home?
to
parent?
past.
cost
destroyed.
debt. dreams—for that will
risk
If
unemployment
author lose
we
solely
to
4
then,
scenarios.
in
full
proverbial operates
well-being and the pay
to
Ls
they
a
will
America’s
mean a their
that
maintain waste turn
to In of
Nobel their
a
every
Government
and
we 5
What
professor being we employment
“new
ofFreefall:
the for
economy
of
the
percent
in the
is
short,
not
be
be
anxieties:
the
rate
numbers
national their shouldn’t will
NEWSWEEK.COM
children
debt
terms
will
the The
terrible
Sinking the
laureate skills.
money
able
our impaired.
old
number
below
American
their happens
spending
cake normal”
dashed,
mean
markedly
now
ultimate
nursing
be
indebtedness not
projections
children, economy’s
at the
normal
that
to
resources for
of
remains
Human
America,
both columbia
retirement,
afford
on
in and waste—as
of
deserve? has the
spending
Will
debt.
its are
and years,
economy
evaluate
that
was
as economics,
the is
high-return
There
if
impact
eat potential, increasing
care a economy
statistics,
will with
replaced
irony: a possible.
they
is
reducing
for
World they
govern
the respon
normal
higher
We
capital
poten
family,
it work
stuck
based
away.
Free
even
their
of too.
look
How
edu now,
is
lose
the the
the
can an
for
get on
as
an
by
a
23 Throwing SHACKLES BY Of burst VJhen try’s job themselves rates
households met ers dark ing they’re
ing eggs the ing is only disposable that’s record
1980s above
unwinding enormous sector
trations sector. to and ery. federal cent in
Budget Three
24
STEPHEN
Equally are
still market
by down overindebted arrest assets the
process Debt were pre-crisis
abyss
in that
just As
spur
more
of and finally
down
the
cutting
past the
an high years The
indebtedness government
a
deployed
GDP—up NEWSWEEK Office
debt,
were at and the begun.
‘90S.
result, of in started average transfer
saw
summer personal astonishing a than disturbing America’s
decade’s historically S. the Bush
starting
about of the
in
vigorous later, serious
recession, winding
back ROACH 2007.
and
severely estimates their
deleveraging—increas 20
crisis 2007, citizens
global
Off
at
U.S.
outsize
and shrinking;
percent. of American from of
rebuilding
10
the of
on
debt
income. to The era SPECIAL
net
America’s trouble.
75
2007, it’s points down Obama has household into
is climb credit economic financial
spending, low end the 120
quickly
and
just depleted percent of
stood worth
budget
that
Congressional the
still
involved excess.
levels;
of the percent
the
later debt—has out
Although and 36 consum
from
ISSUE Savings
fact bubble the if
2010 adminis
at
sharply
private- found coun plum
crisis:
percent deficits of current
in public 62
recov
U.S. to dur pay
nest debt
the
But the
that
per the U.S. the
try an of
economic debt by now during aftermath. whole no the been modest
clearly ment rate. government—the among ritory rate—actually 2.3
the Never suffered domestic
position. age
to ings from deficit financial the world—and with been sive What
2002 trading percent Japan, world’s
the sidizing 2020. ing and
deleveraging
Now
mix the percent
All could
American
in world’s
broadest The swamped
so-called deficits, void, red up World abroad. in
90 is
peak,
weakening before
rest
America’s in in Washington this drop this of rarefied
the
and 2008 individuals,
partners’ against such leading countries that
in savings. policies
ever-mounting imbalance soar country’s
America’s
ink. public
America’s
of
importing of
puts United means
an War Germany—to the leading
to
national in
and dipped unsurprisingly, This
is in there the a measure
currency to
by This at
anemic an
an still profound dollar household
surplus territory
net II
and great modern
federal 90 fell Put
currencies. all—only world
the continue,
has in mounting outsize average
and
for States
combined with
in really current percent into
economic further, threatening national shows
2009.
private simply, income, overall
business,
surplus
dollar. led
is pressure a
the
its
global
of wars
U.S. savers—China, finances very to
the
now negative
continue
history
to immediate seen has shortfall trade of
a
These has
U.S. fill a
debt
up rest account— a of
to debt. America’s
country’s the debt. federal have now govern insecure shift
in savings
Since savings
down
massive recovery,
to saving savings its
minus
power GDP
been only
2009. as
on deficit very
aver of
are
has and turn mas ter
sav has With trade heat
also in
sub A
the
a
in the
its
24
sanctions may ing States years. have a interest could funding
ment ent ish—have —especially deficit raise tial the belt-tightening is
sharper
Meanwhile,
still
their
start U.S.,
danger
ingredient
deficits been
suddenly at
To
long-term
betting reduction,
squeeze.
rates surplus the
though, getting the
drop on
drawn
content the at same
remain extent
China,
on
that
out-of-control in home.
exists—rather, find
Germans
in savings
nervous
economic
no a
the making U.S. very
deficit
line
their
such that itself
a
with
foreign
dollar
The
clear
debt, low
in
to
this
spending consensus and about
strategies
in
it the
the
growth. rates Europeans in
or
and
a an
America
leads
the lenders
America sand
govern serious United
higher recent
send
essen
pres they
Brit
will
to
on
on
In
to - eventually that debt. in ment’s ca’s hole. tary the nition, tional last of already-low nation’s tical making public to of
To
Japan
debt.
the service
Federal
future
used—unsuccessfully—by
enables
policy
effect With If
make
tools
and
current end.
and
the
two
in
it
generations.
America’s
create its
has
is Reserve U.S. of
its of
private matters artificially
the
If
interest
“lost now
main
money
these
struggle
left
it’s
debt
is
public
the
right, deploying
the
decades.” wrong,
interest
has
debtors
worse,
policies
will
creation
massive economic
rates
country
sector
to
cheap
no
all
haunt
cope
more
the
will
rate
even
U.S.
to
unconven
is
The
to
that
overhang
the in
for
continue
with
govern
to
growth
Ameri be
at
ammu
pay
mone
a
lower,
Bank
prac
zero, push were
deep
both well
the
off
to make relief rates. sow break indebted bubbles as was, late widespread turning essary was what fall. markets
a
The sustainable
As
a
another
Massive
the 2008
the
sudden
trying
challenging
is
debtors
of
worked
What’s
to
problem
hardly
right or,
out
inflation.
then
seeds
stop
society.
and
at
round
agreement
to
to
fiscal
recovery
medicine
and
some may
the
dangerously
more,
to
manage a
of
be
early
panacea is
In as
global
shore new
and
far unexpected not
of
point,
that
the
fact,
2009, such
asset
now.
more
be on
monetary
at
excesses—such
the
financial
economy’s
up
these
that
the the for
it
even
vulnerable recovery
subsidized
and could
vexing.
crisis-torn there
steps
an
recipe
time.
an
rise
tactics
overly
credit
policy
crisis
well
out
nec
was
free
But
for
in
In
is
evant Washington ing
debt—there recovery. private-sector can people and a Deleveraging money necessary,
ing children chairman ROACH, and Tale
Nowhere
lasting
less.
a
author start
University,
government
shell
than
that
will
a
of saving
Eventuall member expect—and
cure
of
game—in
part in
are
Morgan
can
got
need
The
can
is
the
debt
is
these
NEWSWEEK.COM
a
do
again.
us won’t
of
also
of
Next
painful,
United
and
be
to
Stanley is
the
into
that
for
nonexecutive doubts
to
both effect,
stop
faculty
no
Asia.
Unlike
deserve—noth
come
the
continue
this
public-sector
process.
States.
Asia
but
sustainable
the
borrowing
American
swapping
more
problem,
of
the
cheaply.
entirely
Ameri
play
If
easy
Our rel
all
25 over a to turn esting nations Britain, The normal have on debt, panies would next and a ital heavy acquisitions, high-growth creating India, the
tainty continues ticular, about continues sitting 40
year
slight
But
decipher
their
expenditures, extreme
create BY
But Companies in CASH
companies
year,
differed
more now,
what’s
and be
on spending,
over anomaly
would
where
most firms
R. times,
NEWSWEEK
like
and
recession
uptick
respective
good
investments,
piles
to
to
M.
Brazil.
and
jobs. analysts
how
caution taxes
loom
than
also
unfold. the
Japan
countries dividend countries
SCHNEIDERMAN
demand
invest,
for from
of
this turn
as
in
in
new And cash.
has
and United
even
large,
the
economists Nowhere
and
and
$1.5
the
abundance
spending
SPECIAL
balance
firms
say
are
others, In
to
this
economy,
expand emerged.
why
indeed,
“Companies
is
U.S.
a
as
payments, access
firms
the particularly trillion such
for
low variety
there
saddled
mergers
States, time
have
the
and
this
U.S.
more
and 1as
sheets.
ISSUE
are an
as
continue
around
capacity,
as
over
to
recovery
retained
may
as Europe
of
AND
down
in sitting
of While China,
simply
uncer
inter
Great
been
cash- credit
com than
with
cash
were
cap
job-
par and
the
be
In
in
AZRIEL
is
HOARDS
caught
markets Ruchir were that are rate As unemployment
panies decades. by found ratio sity
shock, nomenon 2008 market. productivity, essary which reduced
to of taxes, tinued
Microsoft Meanwhile,
Even
The
2009, Have
129
a stockpile
of JAMES coffers
overcompensating...
perception
for
recession,
caught
consequence,
Arizona
become
in
and
that
recession percent
to Sharma, compounded
before
had
uncertainty
equity
to
industrial Firms
yet
Researchers
a
inventories—everything improve and
alone
may near-death
regulation.
RELPH
many the
been
short
greenbacks
the slowed unemployment
sent and flush at
and
shed with
become from
changes,
had
the
Morgan
average Spend
ended
recession
firms stockpiling firms Ohio
their
tremors slower in
with
so
its
$43
head workers,
over
1980
this
from
experience,”
the
production,
As
massive
too
the
State
billion
in
in have
balance
bloated cash.
Stanley.
because
cash-to-assets
ongoing
growth. the
of
of crisis.”
to
due new
the
the began,
may
through the
November,
emerging- University
2004.
continued
increased
economy,
U.S. cash
on liquidity
summer
normal.
remains
Univer
to
higher corpo
sheets,
“They
hand.
Until
com
they
says
phe
rose
con nec
The
and
the
for
large at demand—once sputtered. for they Spelman, risk,” are
finance ereign [and rate European From were ernment cent.
recession Even house counterparts
will of ing, banks
major But substantial
The
Over
its close
Accenture.
concerned
as in
likely
analysts
companies are] Among
firms
percentage
2008 says
have
Germany,
in
recession—and
consumer
the
uptick
debt
at
become
the
to
debt
order,
Arizona
far
the using
firms Thomas
be “Companies
euro
to
in
10
contingency,”
next
crisis
and better 2009,
a
enough the
has
Great
say global in
percent,
slight the
saw “Even
about
zone
increase.
more
to
cash
which
of biggest
new confidence
seems been
year,
State.
it’s
engine
Bates, the
in hoard
than
Britain, the
the
increase
went
head
to
jobs.
Greece—has
corporate industrial subsequent
willing a capital
not to
want
net
however,
and
to
major weathered economy—has
hedge its cash
a
cash
have
that
result up
professor
likely
says
savings
of
continental
where
In
grows consumer
to
in
by
hoarders
concern.
markets
strategy
drove to
the its
as
against
ensure
spend
saving
4
Mark
firms
there to
fiscal
lend. well.
in
gov sov per
vast
rate
and
led the
be of
a
a ‘1
r ?i I majority dividends logical in workers.
mist people,” sectors, the
merger-and-acquisition est, that increase short
result to better emerging
Brazil, recession have have of just are ing panies
Global Manyika,
another their
percent the ing
all tute. the their and 42 corporate
Even
For
the take
some
their many not
mountains
S&P middle
U.S.
to ...
too
at
younger GDP
term. America
And business
money in
growth
American
United systems
India,
the
saddled are
not
place
Standard
NEWSWEEK
job Institute. says of
reason when of such Firms
tends
employment—at
“Machines 500
cash
cases
markets. expect
the
largely
growth
or
tax their between
here Investment actually
cases,
class
growth,
and
Index
would
demographics,
overseas, David
prospects. States director
upgrade
is
rate
as
and
that has overseas.
with to
to of
corporate [in
profits
will
firms currently
to
China
and
unscathed.
rates firms start
reduce
&
technology,
in
cash
the
“Quite
equipment,
make The choose hiring,”
the
see
25
SPECIAL
be
debt.
and are most
Wyss,
Poor’s. the
replace
at
of
consumers
U.S.].”
to
subject Company
putting
abroad,
well came particularly
an
their
second-highest
major
least, cheaper will
Countries are
world. Europe. the
Companies
activity,
more
6o
“A
of
rather
least
held
to increase
coffers
often
an
says
above
lot
it
percent an McKinsey
the
ISSUE
out repatriate increase
In
They
taxes techno
is human
to
reason: econo
more than
of
which accord
where
outside emerg
“It in
James
some
likely
of ...
larg than
taxes, than
They
Insti
com
who
that
like
the
may yet
the
are
do
it’s
all in
in
40
in
of
of
______
nies than actually
global rJohnson&Johnson IE its,”
a ______
will
Biggest
$0
SOURCE
euro edge; The 151,000 is growth 2
lyst—is far workers; countries
they gets
their
recent
None
expected
percent
grind writes to
from
to U.S.
STANDARD ‘
are may
zone
ratings
it’s tap
marketing
of
note.
draw
be
thousand from
still
still
economy, this
to
simply a the
the
John
be
Cash ---nw’
and
cheaper
will &
to
massive, ______
on
a
POORS .-
likely
2O1
A’ti4SN’.
designed
emerging
at
domestic $10 is
assembled
on halt
latest grow
to Bilardello,
Standard the
lose
a
plans their
a
jobs
Piles say
or
to
subset
for
question
at
for
technological
year.
job-creating
that their
benefit
that
a
in
in
instance,
credit ______
markets—while -.
offshore
are ‘Os these
rate
•
in Silicon
the
October,
&
job
the
of
r
competitive
Meanwhile,
still
China,
Poor’s,
of
developed
of
$20
U.S. markets
18.9
creation
domestic
19.3 compa
head
roughly
extent.
Valley,
20.8
drawn added prof
and cata
gad
and
Billions —
but
in
of
23.6
25.2
up
25.6 not
go-go a be
criticize says
were
consumers increasingly analysts wake to
how
could of spending, in puts As growth
Nevertheless, return
disappointed.
in
likely
justify
both
fewer $30
Manyika,
Wyss,
New
living
it:
growth
to
of
mean
“We consumers
until
the
do
say to
of
the
jobs
York
massive
334
and
change.
way
the
the
more and
United companies
maybe
recession,
forced
it
a
of
added, the
feels
beyond or self-perpetuating a
full
S&P
“I
anyone
the
governments
less
with
don’t London,
SRAPHIC
$40
McKinsey for
to
investment;
stuck States
normal.”
employment
1990s
39.9
live
robust
weak
not
they’ve will
our
less.
BY think
waiting
with STANFORD
within
and 43.3
spending,”
will
means.”
and
find
consumer
And
economy you
director,
sluggish
become
Europe.
learned
KAY
it
that’s
likely
in
them,
“We
hard and cycle
can STUDIO
$50
for
that
the
As I
¶
f
THE Inside
BY
Of
large ing the ter tremendous If building invest the But taxes, of growth—account uncertainty
noninvesting.
JOSEPH
West look
youre
slack
and
none
the
and
or
is
up
the
elsewhere.
palpable out
creating
capacity
profitable
of
on FULLER
CEO
over
“new
of
the
unspent
MIND
corporate
the
looking
future
for usual
and normal”
still jobs,
downturn
Their
companies
the
measured
in
cash
to balance explanations— regulation
you
pervasiveness
the
hesitancy
world
the
by
economy, bad
reserves
world’s
to
invest
sheets.
in of
pull
bet
and
low
the
to
potentially world at shellshocked rial in world
sions that easy Used pelled
er Think, Depression who risk-averse business We could shift marked
There
its
a work:
class
have
reliable
credit,
the
to
to that’s
lived
in
shaped ability
have
them
as
more
by making is
itself
the
business
leadership likely
today’s
a
profound an
a uncertain,
many
more
in
for through
and
compass
by
years
new
more
to
careful by
their
that
analogy,
crisis.
the
entered
bold, make
remained
volatility
executives
ethos
far-reaching
has
of
CEOs
instincts
careers
fundamental
rest
and in
America’s
and
for
fast
It
it’s
aggressive
lost
decisions
of
is the
of
a of
their
possibly the
conservative
growth
not
have
caution
long-lasting
and
are
confidence
thrifty
the
their
today
West,
that
manage
just
no
actions.
shock.
people
force
been
Great
long
lives.
deci
in
and
pro
neg find
and the
that
and
one
a
years ative bubble with
lion Then, turbulence of litical tide
exchange even The grace
multiple much ment
ing settle are Many a the risk. company use both
and of making den cle’s higher. ware the
where known a
Consider
The
small
For protection
a
What opportunity.
cash
using
it
years
in
typical chronic of
availability
cause
before effects
November This to of
in
for
turmoil,
maker for
the undermine to more
large
the
9/11 new
equity
and
Oracle’s uncertainty—including
come.
bounds.
their
expansion We
proof
acquisitions, because
other hedge
business
dimensions.
small,
since their
pension propensity
shellshocked rates—marked
them
bursting
the
in the
likely
the on corporations
are
deal heralded
mindset
terrorist
ATG
companies’
against
value
kinds economic
commodity
the against
for past financial
NEWSWEEK.COM cash
destruction then
risk
still
2010
incremental
to
of they
today
to
confidence.
companies’
for
in
economy
hesitate
schemes,
any
financing. decade.
in
defer
of stays
seeing
were
to
a
purchase
of
to
for are is
$1 threat.
future
the
risks
familiar Executives
the
investments
shore
might
CEO,
hold
crisis
investment volatility,
billion.
visible
performance.
the are
example, anxious
decisions
within
the the
prices
U.S.
emergence
in companies
of
It
will
for
improve
marshal
cash A
again
financial
up
the
of coup
dotcom
the opened
be
returns $
geopo decade
of
Others
market
alone.
rising
many
It
along 2008.
likely
their
well
over
tril bur Ora soft
and and
face
and
was
are
but
are
de
or
as
43
is INCALCULABLE
MOSCOW’S ENVIRONMENT
left decision, Western market. a not ownership
the India,
culable Russia, the miliar with
acquisitions tegic ers be operations 44
major
that
risks those
expertise in
look
sectors.” the
RISKY
an
most markets
for risk.
But
acquisition
NEWSWEEK carry
company,
of
particularly
ever-lengthening kindly with
hostility
of
most
pursuing in
in
In or Western a
needed
markets
large limited
China, Favored
long-established,
the have investment
companies,
on
would
new
of
in local
SPECIAL
a
grown
foreign
to
the for like position companies
risk? governments a
companies
era
operate
big
company.
regime
be China, a
list
by is
of
in
A
emerging cash-rich
ISSUE
to majority an
caution,
in of foreign
parallel
logical
make there. incal
viable unfa India,
“stra
does
lack
For
will
to
that’s It
manageriaL longer Many
business and type those risks Latecomers
ing
is If
ethos
the Brazil,
of
too
not economies
rich uncertain, “new
executives high.
trust
of
just
as
and
intellectual instincts. caution
normal”
well
cLass
will dabblers
the
their
as
increasingly
among
begets
world those
it’s
itself.
property
no
own
will
the
the an
with
find
endur
mana
seek.
that
the
the
gerial implications and governments enterprises cies preneurship entrepreneurship enterprises. will large nies top ties of champions” ries Countries investment low Arabia, geoning pointed, who now boom extended
the servatism opportunities the of “new The to the stuck those
FULLER Countries
the
Companies
specifically
prosper.
opportunities, graduates
at
of those labor national past and dominate
marketplace
standards less
class,
benefited
greatest prestige
normal” of entrepreneurial who the
in
diverse
may
are
is the local as prosperity.
willing
costs, hoping remain
whose next
only
their
the
stare targeted where
Countries and
will for will
it no
Western
past
policy.
cofounder find designed eschew
will
and economic
opportunity
has
and will longer wave
when sources
markets,
from like down they
support
paralysis. culturally economic
will slip have
to reluctant
not to
competitors established
20
safety
cast themselves changed
at
take
Vietnam, be
evaluate have
of
ultimately years further
proscribed
If
their they job appropriate. used the companies to
countries firms
of that
to
of
the foreign
off
activity
Monitor
for risks. established of spur enact
risk
opportuni like
investment investors, profound fear
accept and
As may beneficia recovery may their
the “national
embrace to
in
smaller
compa behind.
or capital
are risk entre
and
disap always, direct reward Those
Saudi poli nature favor
assess have
Group. enjoy
them. with
bur and
come
con
that
The are
still
act.
in 54 collapsed virtue by fueled moral living its reality steady. Growth emerging sumer declining of gally aren’t in mortgages, emerging millions eager peers LOOk (or ily For The Asia. saving, of money, three) every saving
Will BY
How
BINGE and in Asia’s all to point by credit rewarded. in is But NEWSWEEK culture It the OWEN in that expand in of putting village living turns while that easy markets markets, in at there increasingly the look credit West. and many burgeoning of consumers different is global the Asia’s credit East, spreading MATTHEWS view, out in not grandmother of more is their production, aside With places. cards, 2008 Growth a are that at nowhere SPECIAL quite Western-style city, economics by
Help and and
legendary Asia’s least from carefully, business, picking the some many financial contrast, and striving middle affluent all a rapidly consumption, it’s help in those a myth, AND faster across of auto grandchild ISSUE of a the living has up of the the story and classes, from culture to of tens across fueled banks is crisis. loans. ALEXANDRA cities, West, home their keep fam than hab held con fru fast the the of of a
the
SHOPPERS tion up easy versity usually debt. that vate “spending a thrift, lectured tiger nations or University home sector Korea, consumer annual ‘While sonal one crisis. stantial fast-changing So values, with of that plastic debt would economy much A. When credit, mortgages even The the more deregulation all of
West rest blush. the disposable taken, SENO the has Maryland it to says economist before region’s finance. Southeast money, took evolving is has for West make than easy discovered snowball now credit-card whose Carmen Malaysia, Asian regardless centuries-old its was and they credit about half at highest says even own In economist. income, since ‘‘ consumer Li a car leaders city. Asian earn,” that to bout Hong Kui-wai. Reinhart, percent Hong the Asian festering is some loans, another debt 150 2008 It levels of offered, debt pleasures of is nation abetted have a percent taboos Kong, Kong traditions and financial- a values In needs Western the number of for genera is of a South Asian credit other GDP. often from Uni sub City per it pri has the on by in of of of is certainly is emerging growing tlements about to warn, omists financial Binge average instability even come, need growth, instance, damages to for and and order sumption If But now rising boost the all back help if to this: to as shopping all excessive global it’s higher that Ma outstanding grow urgently warned balance credit long no to stability.” the credit their into this get markets share the on in the Guonan Western doesn’t locomotive the economy. their as the credit—is a shopping Bank than broader boom sagging buying cost, of beyond they as indebtedness their needs West financial Eventually, own poses early GDP; sound in of credit-card and prerogative. contracting can in International economic Western economy. mood. Instead out exports, very to and consumption Asia for as one’s Tae avoid that’s “new familiar, raise 2008 system, of all spending— good and Soo China, BIS its means will of that of the Europe. risks balance that its growth Asians credit, slump trying Asia’s econ other Kang news how only con lead out Set and the for to in is I :
F ___° ____
way to compensate for the drop-off in sales to the West. In fact, Chinese con sumption as a percentage of GDP has actually declined in the past decade,from 46 percent in 2000 to 36 percent in 2009. And, says Peking University economics professor Michael Pettis, “unless domes tic consumption expands dramatically, China can continue growing rapidly only by increasing investment well beyond what is economicallyuseful or by forcing larger trade surpluses onto a reluctant world.” So to rebalance the world econ omy,the question is not whether Asians are spending too much, but whether their spending is growing fast enough. So it’s very goodnews ifthey’re spending, and if they need credit to do it,fine. By Western standards, Asia’s cash reserves are still massive.Ever since Asia are more focused on the fruits of credit- than 6 million by the end of 2010. In Tur emerged from the economic uncertainty driven growth than on the dangers of key, too, credit-card advertising domi of its last financial crisis in 1997, people easy credit. Malaysia is a prime exam nates the urban landscape—and it works. and governments have been stashing ple. In 1998 borrowing by individuals Turks borrowed nearly $ioo billion in awaylargechunks oftheir incomesforthe accounted for only 25 percent of debt in 2009 on plastic, a staggering 7 percent of proverbial rainy day. Now China ranks that country, while today the figure has GDP, at interest rates as high as 42 per as one of the world’sbiggest savers, at a grown to more than half, fueled in part cent. Up to 15 percent of Asia’s house national rate of 38 percent of GDP.India by personal credit habits. In Turkey, too, hold debt is now from credit cards. The boasts about 35percent ofGDPin savings. the number of credit cards in circulation bottom line for emerging markets is that That’snearly 10 times spendthrift Amer grew from 15.7 million to 47.7 million, ica’s3.9percent. But these numbers, too, more than one per household, between are deceiving.Dig a little deeper, and it’s 2002 and 2009. In Russia, the volume of Household Savings* the bank accounts of export companies, consumer credit has been growing by 1 as a percentage of disposable income rather than thrifty Chinese and Indian to 2 percent every month since last May, 15% households, that account for the bulk of and now the country’s total consumer 2011 those holdings. credit is $180 billion—2o percent of —— 2007 Undaunted by the fallout of the 2008 GDP, and a 5.4 percent jump above the 10 — credit crisis in the West, local and West previous year. “Credit is a positive ten ern banks are doing their best to reverse dency for Russia’s economy,” says Ivan this culture of thrift across emerging Lebedev,vice president of VTB24Bank. 5 markets all over the world. And they Massive marketing campaigns are — have a point: unlike the stagnant West, helping to drive the boom. China Union- emerging markets are growing, people’s Pay,the biggestcard issuer in the People’s incomes are rising, and credit is seen Republic,has been buying up advertising 0L as an expression of confidence. The billboards across Hong Kong in a bid to -5 basic pattern across the world’s fastest- double the number ofcards in circulation U.S. Japan Ger. France Italy U.K.Canada growing economies is that governments there from 3millionin early 2009 to more JUNE 2010 SOURCE:DECO GRAPHICSEl’STANFORDKAYSTUDIO
56 NEWSWEEK SPECIAL ISSUE a
credit wafer-thin was base, pyramid: to thanks past undergone
Household as 123% SOURCE U.S.
a
credit,
percentage
long
decade.
a
drives OECD
Japan
in
small 128
famous
part a
Brazil’s
middle
huge
a
growth. Ger. As
elite radical
to
of
Debt U.S.=52
more
annual
underclass
the for France
at
class
social tALL
its
the
economy
makeover Take 2010,
widespread FIGURES disposable misshapen Italy in JAPAN
pinnacle,
geometry
Brazil,
between.
at ARE AND 147 169 U.K.
the
stabilized Q4 ITALY=O4
over 205R
income±
which
access Canada
broad
and social EXCEPT
But
has
the 2008
a
and
2000. people cially millions the gone and turning cent tions); their own ers; that acquisitive 628
2009. the is Banks projected class the among cards still credit year, emerging credit on. summer, lion eration a story cardholders rate of Credit summer as
in Recent 21
It’s
their
the
end
first then industries. next million
89
the
In percent
of in have
to of own computers
number
the customers,
By
and
Half
cards.
in
will
has have
anybody’s
and percent the
town
2011. and average
of
the
analysis
hands the
Brazil, the
balances—almost
found
began time
five 2009
of census
Hong
of nation’s 2010, to homes;
is no
markets’ the
of
overall been
likely fever 40
credit
climbed all
heads
2010 Brazilian
credit
grow emerging
In
with
expected
clip,
years, the
had
bank
in
have of
the
percent
an
have
Brazilian to have
a
Kong, retail
of
for
data growing (and
low-income
new
group survey
and Brazil’s that 22
is
boom, cards double 11 their largest
nearly by
economy.
carried middle
guess
supposedly
of
agencies
the
percent
percent
instance, accounts,
nurtured broadband out credit
mobile
showed TVs.
5
merchants,
fully
plastic
with 70
middle
credit
where
to
of percent
pent-up
consumers
number
will
of
reported some
of
percent
three
reach social
by Brazilians
by history how
class
Banking
twice
over
Much poverty
boom 30
the
increase
phones; are
be
It’s
project
and 17
(9
that
growing 2020.
the
class percent
banks 27
by
consumer many
a issued profligate
percent times
was
demand, long
economy car
class $360
the
the
of
percent)
as
connec
year
middle-
million
69
of banks,
of
Prime-
can
Those
credit.
in
credit
since
many own
have same Even
own
local offi bulk over per who
Fed
that half
this
last bil use
for
the
the
the for
by
go
of
at
a
that U.S. 2010, on ans stock S350 news collecting between learned Taiwan, a some credit have
tougher credit-card poor lated splurging. for mortgages. sumer Asia cent incomes, world meaning
lessly consumption, debts has strong So tion imitating consumers into MAC WILLIAM
With
string
Still,
Before
personal
far, 15
debtors.
roughly
so
example,
of shattered now
million
been broke
people require MARGOLIS ANNA
India’s
in
crashed
of
would
by or
believed
rules can’t
much and
there
emerging-nation the
of
from
lenders
an
Hong
the
plus
older 2001
the on
the sheer
that
is credit-issuer UNDERHILL
curbed.
Asian that card’s
savings
even
marketing
effort NEMTS
debt
Most
its
Another whether are 10
with
have
industry’s eventually
trouble.
SKS
practices
in
relatively 2008
payment past are
two
the
Kong,
were
and
microloans. that
many
they percent
and NEWSWEEK.COM
growth.
it
than fresh
get
in
courting payments.
was
signs balance to
offers
Microfinance
been
card
mistakes,
banks average months
Brazil,
crash, OVA In
are
credit
a 2005.
three
control
that
and 2010
card.
American
Asian haven’t
of
having
that
capital—and
some
of
bankruptcies
has
in
high.
of
high
be worst
in
that
The
tightened
of companies growth
at
those
London
South
fuels
South
and much
Moscow, study each
months
erased tend
Since got
government
disaster least
“subprime” Asian been later
In
banks
countries,
consumer
meltdown minimum The
including
Asia
difficulty
excesses
the
targeted
August
healthy
month,
beliefs.
ones— loper-
raised
found
is to Korea
of Kore when
regu
then, ques
pain
West
con
late
and
has
and still
the
its
be
by in
in 57 goods—fueled ers a binge from years, financial helped with cans done
2 By amassed Asian sonal disposable debt
58 any
chastened or
of
major
3 BY
ANGLO-SAXONS 10 Really Can
and
had
in
rights,
spending
percent
recklessly
debt.
the
Americans
countries.
percent bring
by NEWSWEEK WILLIAM
disaster
the
reached
even
developed
economy.
their
income,
By
mood.
British,
the
of
by 2008,
on or
larger
free-spending
their
indulgent
world the
more back
credit The
had houses 183 UNDERHILL
After SPECIAL
the
world
average
in
income, careless
percent
amounts been
British,
in in
particular,
highest
to
and
all,
and
European 2008.
should
the
Stop
banks—that
saving
it
household mortgages ISSUE
consumer
compared
ways. of
was
consum
brink
in
level Ameri
of
annual
be
turn, were
their
only
per
and
For
in
of
of
gality the sure. profligate been and consumers ing ing ter ain while. in percent, the and in
So Spending?
Another
the 2007
of rate
and to
fact
error rebuild
came
an
Initial
have 2009,
a second
was
In
more America. new
to
that
upturn
where
Britain
of
down countries. 7
sign
the
would
taking
their
before percent
signs
era
many
than
their
quarter
it
of
spendthrifts
in
of
to
the
depleted
has The
new,
tripled were
thrift
savings have
dropping Americans
ways?
a
hold.
in
rate
measly
Indeed,
of hovered
U.S.
the
thriftier 2010.
that
to
in
is
from
Overindebted
savings,
personal Don’t
second
in
the
pay
falling 3.2 a
back
now
both
there
now
new 2
are
formerly
habits
off
percent
percent
be
quar
again
to
turn-
lead
Brit seen
for debt
sav fru
has
too
5.5
is
a
ing boom height
to to used and Strategy
volume ing 2010, skyrocketed, accumulate
lion Association. by Americans and
But 56
sink
the
for
their
by
more
it
percent
credit
according
in
look
of
Network the prepaid seems
below
of 2007,
&
the
backs
$32 cautious
end
closer Research.
cards.
have
debt.
credit
in
from
old
billion 50
87
of
debit 2009
on
Branded
to 2010,
pared
percent percent
at
habits
That
Debit-card
bubble credit
consumers
a
a these
cards,
and
in
Meanwhile, report
total
according 2007
back
figure
die
was
by of
numbers,
Prepaid cards.
and
which
transaction
Americans
the
by
hard. to
their
projected
dropped
use
housing
are $80
Javelin
to At
end
more
don’t
Card
data
opt
per-
Yes,
too,
has bil
the
of . -AP - C: s j% - 4 c
U ,J S: *43 7/c — .
sonal debt. In the third quarter of 2010 to save. “People got used to accumulat the value of their homes has plunged. alone household debt fell $iio billion, or ing wealth without doing much, and That practice is rare outside the United almost 1 percent. The total has dropped that makes for habits that are hard States. On mortgages, continental banks more than 6 percent since its peak in to break,” says Dynan. Some even ar are much stricter, usually capping the 2008. But skeptics point out that much gue that there’s something in American amount that can be borrowed at ofthe overall 8 decline has comeas a result or British culture that makes people percent of the value of the home, ver of home foreclosures and defaults on forever spendthrift and happy to live sus more than 100 percent at many U.S. credit-card debt, hardly an indicator of on debt. Jacques Monin, an author and banks. French banks won’t lend to a improved habits of personal finance. commentator, says that attitudes toward would-be homeowner if the monthly “I would love to be able to say that we debt are rooted in history and deep- mortgage payment exceeds one third of have learned lessons and will be thriftier seated national attitudes. “America is a her monthly income. going forward, but I don’t feel we have,” country built on taking risks,” he says. It’s loose controls in financial ser says Karen Dynan, an economist at the “France isn’t. There is a long tradition vices—both by banks and by regula Brookings Institution in Washington. in France that you only spend what you tors—that inevitably lead to higher “That isn’t to say it can’tbe true—but we have in your \vallet, and ifyou have extra borrowing, says Reinhart: “The com just don’t know at this point.” She also money, you stow it away.” mon feature of financial liberalization says that the statistics fail to show who, That kind of cultural explanation has everywhere is that credit becomes more exactly, is doing the increased saving. In become popular, but it doesn’t go very readily available to households.” Saving America, more than in other developed far. Carmen Reinhart, a University of habits followa similar logic.“People love countries, it’s the richer households that Maryland economist who has studied to make moral judgments, but in coun can afford to save, while the poor get the debt history of many different coun tries where there is less access to credit, mired in debt. tries, says habits of spending, saving, consumers save more because they need The truth may be that the spending and going into debt have little to do the money to buy the things that they urge is hard to contain. Entire genera with national traits. It’snot moral turpi want,” says Steve Blitz, chief economist tions of consumers have grown up with tude that breeds profligacy,she says, but at ITG Research in New York. In other the idea of instant consumer gratifica easy access to credit. Take the notorious words, it’s not a return to sobriety and tion and the credit culture that comes home-equity loan: a widespread prac rectitude that will keep the credit-crazed with it. The seemingly perpetual ascent tice among American families was to out of the red. A tougher line on lending ofreal-estate and stock prices in the long borrow against the market value of their just might do the trick. boom before the crisis created rising homes to finance everyday purchases. wealth without the hard work of having Many of them are now deeply in debt as With JERRY GUO in New York
NEWSWEEKCOM 59