WHEN interest rates are high savers are happy, but borrowers are not.
In its latest "Equity Gilt Study", Barclays Capital tested the outlook for the American equity market against a number of population variables.It found that the most important relationship is the ratio of "low savers" to "high savers".
The most important factor determining how they cope with the recession in the rich world will be whether they are high savers, able to stimulate their own economies, or big borrowers.
The question now, with its main customers pulling back, is whether Germany can kick its export addiction and encourage more demand at home.A rebalancing of world demand requires high-savers, such as China and Germany, to spend more and run smaller trade surpluses so that the trade deficits of countries such as America and Spain can narrow as savings are rebuilt.
The highest rate savers can currently receive on a one-year fixed-rate bond is around 1.9% (from the Islamic Bank of Britain), while the top-paying three-year fixed rate bonds – from Shawbrook Bank and State Bank of India – are paying around 2.5%.
The extent of the potential difficulties for councils and other bodies began to emerge yesterday as more and more said they had invested money in Iceland's high-yielding savers' accounts.
Another option, for high-bracket savers: short-term municipal bonds.
Mark Hoban, financial secretary to the Treasury said the move will affect up to 100,000 high-earning pension savers.
Considering that the inflation rate is running at about 1.7 percent a year (and many consumers are experiencing even higher costs), many savers are losing purchasing power.
Luxembourg argues that German tax rates are too high, so that savers are tempted abroad a logic that the German government, which wants to cut its marginal tax rates, seems to have partly accepted.
