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Topic Review (Newest First)
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| Aug 28th, 2006 01:05 PM | ||
| Courage the Cowardly Dog |
$1.26 debt for every disposable dollar, that sounds like my neaighbour. Everyone around me is in horrible debt from living outlandishly beyond their means with brand new cars and houses they can't really afford. So when is this bubble gonna pop and why? Is it anything to do with the trillion dollars we owe to China? |
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| Aug 23rd, 2006 09:20 PM | ||
| KevinTheOmnivore | Over your keyboard and around your monitor would be preferable. | |
| Aug 23rd, 2006 07:51 PM | ||
| FartinMowler | red tape | |
| Aug 23rd, 2006 07:47 PM | ||
| KevinTheOmnivore | Apparently really smart people don't get punctuation? | |
| Aug 23rd, 2006 07:42 PM | ||
| FartinMowler | I read that crap 5 times and couldn't make head or tails of what the fuck the context was? You would think intelligent means that things are easy to comprehend :/ | |
| Aug 23rd, 2006 06:56 PM | ||
| executioneer | way to disregard context farting mowler | |
| Aug 23rd, 2006 04:50 PM | ||
| EVILCAKE |
Quote:
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| Aug 23rd, 2006 02:48 PM | ||
| kahljorn | If they want soft, graceful landings why do they change everything but minimum wage and gas prices immediatly? Maybe they do, and it's just not mentioned in that article? | |
| Aug 23rd, 2006 01:09 PM | ||
| El Blanco | So, I'm not gonna get a good mortgage rate? | |
| Aug 23rd, 2006 12:42 PM | ||
| KevinTheOmnivore |
Credit Good thing Congress pushed through a bankruptcy bill that was written by the credit industry! http://www.realclearpolitics.com/art...edit_boom.html August 23, 2006 Unwinding the Credit Boom By Robert Samuelson WASHINGTON -- We are at the end of the credit boom -- certainly the six-year boom and maybe the 60-year boom. Has any society ever created so many ways for people to go into hock? In 2003, Americans had 1.46 billion credit cards, or five per person. Home mortgages total $9 trillion, and some initially don't require borrowers to repay all their annual interest. In 1946, households had 22 cents of debt for each dollar of disposable income. Now they have $1.26. Behind these numbers lies a profound social upheaval: the "democratization'' of debt. Everyone gets to borrow. But this process may now have reached its limits. Although Americans are routinely stigmatized as credit junkies, that's unfair. Of course, some people over-borrow, and some financial institutions lend abusively. Still, the democratization of debt has generally been a good thing. Millions of families can now borrow for college, cars and clothes. The biggest boon has been the expansion of homeownership, up from 44 percent of households in 1940 to 69 percent today. (Three-quarters of household debt consists of mortgages.) At heart, Americans' appetite for credit reflects national optimism. We presume that today's debts can be repaid because tomorrow's incomes will be higher. The origins of today's credit culture date to the 1920s with the advent of installment lending for cars and appliances (stoves, refrigerators, radios), says economist Martha Olney, author of "Buy Now, Pay Later.'' Attitudes changed. In the 19th century, "it was thought that only irresponsible families bought on credit,'' she says. "By the 1920s, it was only foolish families that didn't buy on credit and use it while they were paying for it.'' In the mid-1920s, 60 percent to 70 percent of cars were sold on one- to two-year loans. After World War II, credit became part of the mass market. In 1958, Bank of America introduced a credit card that (in 1976) was renamed Visa. The combination of aggressive merchandising and government laws prohibiting racial and ethnic discrimination in lending led to a huge expansion of borrowers. One reaction to the anti-discrimination laws was the use of impersonalized computer-driven credit scores to determine loan eligibility. Now, U.S. businesses buy 10 billion FICO scores annually. Credit is about more than selfishness and impatience. "Once consumers step onto the treadmill of regular monthly payments, it becomes clear that consumer credit is about much more than instant gratification,'' writes historian Lendol Calder in his book "Financing the American Dream.'' "It is also about discipline, hard work'' -- the attributes necessary to repay the debt and borrow more. Ironically, our optimism feeds our stress. The trouble is that no society can forever raise its borrowing faster than its income -- which is what we've been doing. Sooner or later, debt burdens become oppressive. One reason for thinking we've passed that point is that the last spasm of credit expansion was partially artificial. To soften the 2001 recession the Federal Reserve embarked on an audacious policy of easy credit. From December 2001 to November 2004, it held its key short-term interest rate under 2 percent. A real-estate bonanza ensued. From 2000 to 2005, sales of new and existing homes increased by almost 40 percent. In hot metropolitan markets, prices more than doubled over five years. Nationally, the increase was 57 percent. The frenzy depended heavily on low-interest-rate mortgages. In 2005, about half of new home loans had variable interest rates (often with low, introductory teaser rates) or required only interest payments. What the Fed giveth, the Fed taketh away. Since June 2004, it's raised short-term interest rates from 1 percent to 5.25 percent. Whether the Fed achieves the vaunted "soft landing'' -- an economic slowdown that reduces inflation without causing a recession -- hinges heavily on how the credit boom of the last few years unwinds. If it ends violently, with a crash in home prices and housing construction, a recession could follow. What the Fed wants is a gradual and graceful unwinding. This turn of the credit cycle could signal the end of the decades-long rise of personal debt to income. It is not just that debt service -- interest and principal -- is at an historic high, almost 19 percent of disposable income. Credit standards may have been stretched too far. Since 1989, the share of households with debt has risen from two-thirds to three-quarters. There are other reasons, too: much recent debt was contracted at artificially low interest rates, which have risen (or will rise); aging baby boomers will reduce debt by repaying mortgages; and many Americans will replenish their savings. For years, the democratization of debt stimulated the economy. What happens without that prop? For better or worse, we may soon learn. (c) 2006, The Washington Post Writers Group |
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