I'm no fan of Robert Reich, former labor secretary under President Clinton, but he said something on the radio today that made good sense.
"Robert Reich: We may yet avoid a recession -- Bernanke and company may make bigger cuts in interest rates. Congress may enact a payroll tax holiday on the first $15,000 of income, as I've urged. But look beyond the business cycle and the consequences may be larger.
"For years now, America's middle class has lived beyond its paycheck. Middle-class lifestyles have flourished, even though median wages have barely budged. The reason is we've been able to borrow so, much so easily.
"With housing prices rising, home-equity loans have financed renovations and home improvements. With credit cards raining down like manna from heaven, we've bought plasma TVs, new appliances, vacations. With dollars artificially high because foreigners have held them, even as the nation sank deeper into debt, we could summon cheap goods and services from the rest of the world.
"But now the era of easy money is over. The housing bubble is bursting, and home equity is drying up. Credit card debt is next. Personal bankruptcies rose 48 percent in first half of 2007, likely even more in the second half -- which means a wave of credit-card defaults. If you think the trillion dollars in subprime mortgage debt carried by big banks is large, think of the record $915 billion Americans hold in credit card debt.
"Meanwhile, as foreigners begin shifting out of dollars, we'll no longer have access to cheap foreign goods and services. For starters, you can forget that long-awaited European vacation. The splurge is over, folks.
As the days of easy money come to an end, what will America look like? Maybe we'll see a recession in the short term. But more importantly, over the long term, the American middle class will have a truer understanding of what it can and cannot afford, a truer sense of what's really happened to its paychecks, and a more realistic view of where -- and to whom -- the economic gains of the last dozen years have actually gone."
End Quote
Source: NPR radio show, Marketplace
http://marketplace.publicradio.org/display/web/2007/11/14/reich_commentary/
Us baby boomers have always been the nation's trend setters. One good thing that may come out of this is a baby-boom fad of living within your means. It won't be about bankrupcy and giving up the ranch and toys. It will be about the new cool thing of low environmental impact living and quality of life.
Instead of trying to impress our friends with the speed boat we own or family ski vacations we take, it may be about the book clubs we are thrilled to be part of and the hunting lodge we own with others that is located a couple hundred miles away from the smaller-home neighborhood we recently moved into.
Short term for expediters, strong cash positions and no debt or little debt is looking smarter and smarter and smarter. The good news for expediters is we already know how to live in a truck. Cutting back to live within our means would be an easy transition by comparison.
"Robert Reich: We may yet avoid a recession -- Bernanke and company may make bigger cuts in interest rates. Congress may enact a payroll tax holiday on the first $15,000 of income, as I've urged. But look beyond the business cycle and the consequences may be larger.
"For years now, America's middle class has lived beyond its paycheck. Middle-class lifestyles have flourished, even though median wages have barely budged. The reason is we've been able to borrow so, much so easily.
"With housing prices rising, home-equity loans have financed renovations and home improvements. With credit cards raining down like manna from heaven, we've bought plasma TVs, new appliances, vacations. With dollars artificially high because foreigners have held them, even as the nation sank deeper into debt, we could summon cheap goods and services from the rest of the world.
"But now the era of easy money is over. The housing bubble is bursting, and home equity is drying up. Credit card debt is next. Personal bankruptcies rose 48 percent in first half of 2007, likely even more in the second half -- which means a wave of credit-card defaults. If you think the trillion dollars in subprime mortgage debt carried by big banks is large, think of the record $915 billion Americans hold in credit card debt.
"Meanwhile, as foreigners begin shifting out of dollars, we'll no longer have access to cheap foreign goods and services. For starters, you can forget that long-awaited European vacation. The splurge is over, folks.
As the days of easy money come to an end, what will America look like? Maybe we'll see a recession in the short term. But more importantly, over the long term, the American middle class will have a truer understanding of what it can and cannot afford, a truer sense of what's really happened to its paychecks, and a more realistic view of where -- and to whom -- the economic gains of the last dozen years have actually gone."
End Quote
Source: NPR radio show, Marketplace
http://marketplace.publicradio.org/display/web/2007/11/14/reich_commentary/
Us baby boomers have always been the nation's trend setters. One good thing that may come out of this is a baby-boom fad of living within your means. It won't be about bankrupcy and giving up the ranch and toys. It will be about the new cool thing of low environmental impact living and quality of life.
Instead of trying to impress our friends with the speed boat we own or family ski vacations we take, it may be about the book clubs we are thrilled to be part of and the hunting lodge we own with others that is located a couple hundred miles away from the smaller-home neighborhood we recently moved into.
Short term for expediters, strong cash positions and no debt or little debt is looking smarter and smarter and smarter. The good news for expediters is we already know how to live in a truck. Cutting back to live within our means would be an easy transition by comparison.
