Last year, just as the subprime crisis happened, credit card debt took off. The home-equity ATM had been shut down, so people turned to the last source of easy money they had left, the most expensive debt on the menu, credit card borrowing.
Since credit card debt has been growing much faster than the economy - more than 8% in last year's third and fourth quarters and over 7% in May (the most recent month reported)- people are apparently using it as a substitute for income. Thus, for the past year or so we have still maintained the standard-of-living illusion.
So now what? It's hard to see where consumers can turn next. Home prices seem highly unlikely to start rising again soon. Stocks? You never know, but the Great Bull Market looks like a once-in-a-lifetime event. Homes and stocks are households' biggest asset classes by far. There isn't much else to borrow against.
It may be that the standard-of-living bubble finally has to deflate. Sustainable increases in living standards have to be earned, not borrowed, and that means performing ever higher value work that can't be outsourced. We haven't been meeting that challenge very well; doing so will probably require much more and better education for millions of Americans, which takes time and money.
The result may feel like deprivation, but I don't see it that way. Who knows - we might even find that living within our means and saving a little money actually isn't so bad.
Friday, August 22, 2008
The next credit crunch
By CNu at August 22, 2008
Subscribe to:
Post Comments (Atom)
When Zakharova Talks Men Of Culture Listen...,
mid.ru | White House spokesman John Kirby’s statement, made in Washington shortly after the attack, raised eyebrows even at home, not ...
-
theatlantic | The Ku Klux Klan, Ronald Reagan, and, for most of its history, the NRA all worked to control guns. The Founding Fathers...
-
Video - John Marco Allegro in an interview with Van Kooten & De Bie. TSMATC | Describing the growth of the mushroom ( boletos), P...
-
Farmer Scrub | We've just completed one full year of weighing and recording everything we harvest from the yard. I've uploaded a s...
0 comments:
Post a Comment