Ever wonder how China has managed to buy up $770 billion of US treasuries?  China is now the leading foreign holder of US debt (and has been for the last 12 months), followed by Japan.

It’s not just the $200 billion they rack up each year in their favorable trade balance with the US but their ability to not spend it.  The national savings rate is about 50%.  Now that doesn’t necessarily mean that the individual family is savings that incredibly high percentage.  The funds may never actually reach them.  The money may stop at the company level.  Of course China is investing in its own infrastructure and technology (witness the recent very successful Beijng Olympics) but in large part, they are exporting their hard-earned cash and putting it into US Treasuries.

China considers internal financial data to be a state secret, so all numbers either published by the country or estimated by outsiders should be taken with a grain of salt.  If the savings rate calculation is correct, it is the highest in the world.

One theory is that the root motivation is China’s one-child rule.  The birth rate in many developing nations is high because it is the de-facto “retirement” system.  You raise children so that at least one of them will take care of you when you get old.  If you’re limited to one child, you better have a back up plan, just in case — hence, savings.  But it’s not clear that this theory holds water, if indeed, the savings are not actually reaching the average person.

Since 2000, the savings rate in the US declined continuously.  In 2007, the US disposable savings rate* reached a low of 0%.   It increased significantly in 2008 and on into 2009.  This April, it shot up to 5.7%, the highest it’s been since 1995.

So, how’s your savings rate?

Photo credit:  flickr

*Disposable income is total income after taxes. Or at least that’s the short version of the definition.  Our Bureau of Economic Analysis managed to write 23 pages on the finer points of disposible income (for example, it includes realized, but not unrealized capital gains).  Our tax dollars at work.

A recession might not seem like the best time to start a business, but as Paula recently wrote, a slowdown can provide you with the time and financial incentive to start that business you’ve been planning.

If you’re starting a new venture you should consider creating a limited liability company — an LLC.

Whether your new venture is selling wristbands announcing your new unemployment,  presenting makeup tips on YouTube, or tattooing pets, there is potential liability in your new venture.  While you should make every effort to deliver a quality service and satisfy your customers’ expectations, things can go wrong. Continue Reading »

Jonathan Jarvis put together a great video explaining the recent credit crisis as part of his M.S. thesis work in the Media Design Program at the Art Center College of Design.  Not only is the movie visually appealing, it unravels the mess into a comprehensible story of financial folly. Either he’s a hedge fund genius who doodles in his free time, or he has a darn good technical expert to back him up.

Check out his other work, and the work of some of the other students.   This is what the future may look like.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Lehigh Acres, FL

Houses in Lehigh Acres, FL are presently 80% off their peak values.  80% !.  How can this happen?  It’s an inland exurb of Fort Myers.  The only economic force fueling the economy was the boom in real estate — construction, sales, and $3 lattes.  When the bubble burst there was nothing of substance to support it.  So, if you’re a soon-to-be snowbird, make sure there’s something to support your local economy other than your Social Security check; otherwise, you’ll be a little less … secure.  Or as Gertrude Stein might have said, “Make sure there’s a little there, there.”

The image here was taken from Google map of Lehigh Acre.  Do you think Mr. Bill was trying to warn us?

(From NY Times article reprinted in Boston Globe.  Original article by Damien Cave.)

Laura Crowley wrote a great article on the need to add a little elbow grease to the atmosphere of hope ushered in with the new Administration.

On a similar note, NPR recently had a story on the difference between Faith and Hope.  I think it was on the “Speaking of Faith” show, but I can’t find a link to the episode.  The message is that Faith implies the inevitability of a particular outcome (e.g. the recovery of the economy) vs. Hope means that such an outcome is possible but not certain (suggesting that it might be a good idea to work towards it).  I hope the ecoomy recovers,  and while nothing is 100% certain, I have faith that, if we all pull together, we’ll get through this.