(And Why It’s About to Go Pop!)
by Karen De Coster
Our http://www.wvwnews.net/story.php?id=5635 is now upon us.
Because real wages have not been rising, the growth in consumer spending could only have been financed through borrowed money. Debt, which allows consumers to have cash on hand that hasn’t been earned or saved, has given Boobis Americanus the ability to live beyond his means, at least for a little while. And a great many have taken up this “pay later” lifestyle, accumulating a great many houses, cars, and other things.
A favored form of debt for funding extraneous purchases has been the home equity line. During the housing bubble, homes became virtual ATMs. Whereas home equity was once used for purposes of improving the home for the long-term, it became a source of quick cash for reckless buyers eager to turn their home into an instant showplace. First there’s the actual house, then comes the Martha Stewartization, followed by the furniture, the landscaping, the lighting, the additions, the appliances, and on and on.The government’s mantra since the days of the New Deal has been the “right to own a home.” In the modern version of “the American Dream,” a starter home is treated as a humiliation, as everyone has the right to own a great, big home in an esteemed neighborhood, and preferably one of new construction and with all the bells and whistles. The term “being house poor” used to be a negative connotation. During the bubble it became a bragging right.
Even worse, home equity has been funding the purchase of everyday consumer durables, especially those items that tend to be discretionary in nature. Home equity has funded the kind of purchases that should be funded from earned, saved monies. A perpetually (and rising) line of credit induces consumers to “bite” at the availability of easy money at low rates, and thus they take the cash and spend their way to a perceived prosperity.
For the average person, “things” have become identical to wealth. They equate the accumulation of “stuff” with “being loaded.” Accordingly, everybody has been well-heeled in these bubble times. The availability of debt at bargain rates and the glory of immediate accumulation due to debt quickly erodes the values and common sense of people.
http://www.takimag.com/blogs/article/the_standard_of_living_bubble_and_why_its_about_to_go_pop/