The question that many credit union leaders are asking themselves lately is, how far do we reach for yield?  With 10-year Treasury Rates rounding near 3% recently, how far can the balance sheet be pushed to make up for a squeezing margin?

Consumers at large are facing a similar dilemma when it comes to managing their own balance sheet.  How much risk is too much?  And with the world turning on its head, with perceived threats of war on the Korean Peninsula and dark concerns about the financial stability of European markets, that question is becoming harder to answer.  Even as consumer confidence is up on news of positive job forecasts, the Dow has tumbled below 10,000—not crossing that threshold since February 8^th of this year (Dow Falls Under 10000 as Risk Is Shunned, WSJ, 5/25/10).

As the world continues to become more complex, and as ripples from the financial crisis and new developments in world affairs unfold, be mindful of consumers’ tendency toward safety.  While many credit union leaders cannot imagine another influx of low-cost funding, the perceived chaos in the world around the consumer could theoretically cause just that.  Consider stress testing what could happen if you experience another flight to safety of similar (as well as greater) magnitude combined with anemic loan demand to see the impact to your net worth ratio.  If net worth is at high risk of dropping below Well or Adequately Capitalized, identify viable steps you can take to be prepared.

Consumer behavior, specifically spending statistics, is being tracked with much anticipation these days.  Given that consumer spending accounts for 70% of the economy, this is no surprise.  So what is the forecast?

According to a new Associated Press Economy Survey, two-thirds of the 44 economists surveyed believe that the frugality created during the Great Recession will endure beyond the crisis (New Frugality for Many Outlive Recession, MSNBC.com, May 2, 2010).  This prediction comes despite a drop in the national savings rate to 2.7% as of March from its high of 6.4% in 2009 and a recent increase in retail sales (U.S. Bureau of Economic Analysis).  These economists believe that spending will increase as the recovery continues; however, consumers will not run up large amounts of debt to fund spending sprees.  Rather, they’ll continue to save and remain conservative with their money in a Mini Age of Austerity, much like Britain experienced post WWII.

While there are some positive economic signs, we could be in for a slow recovery.  Only time can tell how long this Mini Age of Austerity will last or if it will continue indefinitely.