What’s Important in the Financial World (3/13/2012) Impoverished Retirees, China’s Rare Earth Exports

Now that the Greek debt problem is temporarily solved, the European Union and International Monetary Fund deficit posse has moved on to Spain. Officials from the organizations and eurozone finance ministers want the country to revise its financial plans. Spain said it would take measures for its deficit to be 5.8% of gross domestic product this year. The region’s officials insist on a number of 5.3%. The debate is probably meaningless, little more than a war of wills. Spain likely cannot do any better than it forecasts. If it could, why would it not improve its own financial fortunes? Unemployment in Spain is more than 21%. The economy is in recession. The central government might elect to cut its budget more, but there is point at which austerity is almost certainly regressive. That has become clearer as austerity-saddled countries find that, without some government stimulus, they risk greater recessions.

China’s Rare Earth Exports

The U.S., EU and Japan will petition the World Trade Organization over China’s trade policy on rare earth metals. These metals are scarce and are used in a number of electronics products. China has export quotas on rare earth metals. It has countered accusations by stating that its policy is reasonable given demand and its environmental concerns. This may be the first time ever China has voiced worry about its environment as an excuse for business policy. The importers of rare earths are at a disadvantage, at least for now. The WTO likely will be slow to make a decision or take any substantial action. Its decisions normally are not swift.

BMW Sales Forecast

The economic downturn has not hurt the luxury car market. Mercedes and Audi have said they expect good 2012 sales. Now, BMW says it expects a record year, mostly on the strength of its new 3-series mid-sized four-doors and coupes. BWM’s pretax profit last year was $9.72 billion, which is especially impressive for a car company that only caters to the top end of the market. Many residents of developed and developing nations continue to suffer from the aftershocks of the global recession and new high gas prices. The rich do not seem to be suffering though.

Impoverished Retirees

People who are close to retirement age say they cannot afford much once they stop working. A new study from the Employee Benefit Research Institute states:

Many workers report they have virtually no savings and investments. In total, 60 percent of workers report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000.

The report adds:

Americans’ confidence in their ability to retire comfortably is stagnant at historically low levels. Just 14 percent are very confident they will have enough money to live comfortably in retirement (statistically equivalent to the low of 13 percent measured in 2011 and 2009).

The problem is likely even worse because many of these people have homes that have little or negative equity. During many generations in the past, people about to retire could sell their homes to fund their living costs later in life.

Douglas A. McIntyre