Blog Posting: America Changing its Thinking About Debt.
The gist of the blog posting (although I’d suggest people read the whole thing, as well as this article) is that people are finally figuring out that they have to control their spending, that the economy won’t necessarily lift their boats and save them from their inability to save. This is even spreading out to the business community, as Starbucks is looking at smaller cups, lower prices and free refills.
Personally I think the Starbucks thing means they’ve overgrown their market, but it also points to the fact that people are beginning to cut down on their spending, save money and REALLY work down their debts. What’s really interesting is that a lot of people who tried to buy houses are walking away from their purchase, sometimes even tearing stuff up as they leave. It can be cheaper to let things go, declare bankruptcy, rent for a while and let the lenders, bankers or investors take the hit.
In the meantime, they’re keeping up and catching up on their credit cards.
It makes sense, in a way. You can always rent a smaller place, but the ability to spend money on emergencies is dependent on what you have on hand — debt or cash. It can be this week’s groceries or a car or a visit to a doctor — if you have something on hand, you can do it, if nothing on hand you’ll nurse things further and things may get worse. And while the credit rating may go down, it’s always seemed like an imaginary number to me. Never mind its changeability (especially when you try to find out what it is), just the fact that you have to perform for some group just in case you want to put your life in their hands.
So Americans are doing what they feel they can. They’re turning their back on unserviceable debt and keeping what they can under control. They’re also trying to save, at least enough for an emergency account.
That doesn’t mean everyone will be able to do so. It also doesn’t mean that the better attempts will succeed. If the feds decide to flood America with oodles of new cash, we may end up with a situation like what happened in Germany in 1923 where saving is impossible, worth devolves to material goods, and society crumbles by default. If one wants a more recent example, one can’t get more recent than what’s going on now in Zimbabwe today.
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About the only thing I wish is that this had happened sooner. Like in the mid-nineties, before China used us like a crack user working a john for her fix. Maybe in the early eighties, when Voulker was squeezing debtors we could have cut back on our spending and become a smarter nation. But I’ll take now, even if it’s too late.