From Bad to Worse: Television, Debt & Credit
According to any number of news articles, Americans in record numbers are turning to short-term credit card monies for the means to cover essentials like mortgage payments, groceries, monthly bills, and fuel for the vehicle(s).
It’s worth repeating that the crisis of the 1920s & 1930s was a credit crisis (not a liquidity crisis) and that we’re now in another such crunch.
The fact of the crisis itself is nowhere near as distressing as the fact that millions of Americans, faced with the spectre of declining real wages, substantial cost inflation, and more, are in effect turning to high-interest short-term loan sharks to maintain the perceived entitlements of the American lifestyle.
The single thing most responsible for millions of Americans getting used to acquiring debt for all the wrong reasons was the expansion of phony real-estate equity that began in the latter half of the 1990s and is just now in its downward arc from the peak — and the ability to borrow money against this phoney equity. No one should doubt that this so-called equity is completely hallucinatory: after all, it came from nowhere and emerged out of nothingness, and it is to never-never land that the stuff is now returning. Any old-fashioned banker (or your own parents or grandparents) can tell you that equity is built up by paying down the mortgage, and not by imaginary RE fairies sprinkling the deed with pixie dust.
What’s far more real than the imaginary equity, of course, is the debt left behind that was leveraged against it. Appalling numbers of Americans fell for the scam, drank the Kool-Aid® , and are now stuck owing the pied piper ~ whose only known forwarding address is a numbered account in the Cayman Islands.
By the tens of millions, Americans bought oversized gas-guzzling “lifestyle accessory” vehicles (Harleys, giant turbo V10 pickups, jet-skis, snowmobiles, powerboats, RVs, and more); tattooed themselves in ways that surely seemed oh-so-unique at the time (despite the tens of thousands of young guys out there whose shoulders are now decorated with the random compass points and the Oriental characters reading “General Gau’s chicken with white rice”, or the hundreds of thousands of gals with identical tramp stamps & ho tags); beautified themselves with plastic surgery that had hitherto been unaffordable to them; “upgraded” their dwellings with the now-pedestrian stainless steel appliances, granite countertops, and traventine bathroom tile, all on the supposition that the value of their dwellings would appreciate far beyond the costs of these cosmetic fixings; signed up for multi-thousand channel HDTV subscriptions and purchased enormous flatscreens for every room because, gosh, the worst possible thing in life would be a deficit of leisure-time entertainment choices; and had a spending party the likes of which has never before been seen.
Like a night of hard partying buying rounds for everyone at the bar, that wild orgy of spending is gone. What remains, though, is the pounding hangover and the mess and the mountains of debt that remain behind.
The good folks over on the housing bubble blog (the HBB) have affectionately labeled the abovementioned type of living as the “thousandaire lifestyle”. The label fits beautifully. Ordinarily sane adults acted as if they just found a bag of cash that dropped off the Brinks truck in front of them on the road, and were somehow allowed to keep it.
Here’s what the abovementioned spending spree seems not to have included: sensible investment for the future; paying for education; investment in the nation’s manufacturing or transportation capacities.
Were there some kind of higher court into which the pied piper could be dragged, I would have to name the people of the television industry as one of the main groups of malefactors. It was from television that so many people picked up their behavioral cues about living far beyond their means. A particularly fine example of the kind of show meant by this is “The O.C.”, in which everyone is rich, happy, well-fed, well-groomed, living in big expensive clean houses, without a trace of real-world worry ever entering their pretty little heads. An older example, from closer to the beginning of the abovementioned spending spree, is “Friends”, which showed a bunch of young people (supposedly working ordinary jobs) enjoying a marvelously large and well-located apartment which, in the real world, would have required raiding the trust funds just to afford.
Real life is not so nice and pretty and well-appointed. Perhaps this is why millions of Americans turn on the boob tube every night to enjoy their serialized “stories” so that they can identify with these people who seem so much like them but enjoy such nice lifestyles by not working very hard and by spending a whole lot of money.
When given the opportunity to borrow against the phantom equity caused by booming (yet fully imaginary) home values, Americans jumped on the opportunity to comport themselves as if they were extras on Friends or the OC.
One would hope that the closure of the window of borrowing against [imaginary] home equity would send a wake-up call to all the debt-infected zombies out there in dittoland, but no, Americans just flip from plan A to plan B, with the latter being a matter of maxing out the credit cards to continue to afford living beyond their means. This is going from bad to worse. Our collective savings rate has been negative for awhile.
What comes next is neither unknown in history nor hard to imagine. Refer to previous examples of crushing inflation plus crushing national and personal debt. If you are in doubt as to what to do, go read the free advice of “Red Baron” over on the HBB (he usually posts it daily in the bits bucket) or the Mogambo Guru.