NYT:
"...in recent weeks, as the financial crisis reverberated from Wall Street to Washington, consumers appear to have cut back sharply...When the final tally is in, consumer spending for the quarter just ended will almost certainly shrink, the first quarterly decline in nearly two decades. Many economists, who began the third quarter expecting modest growth, now believe the cutbacks are so severe that the overall economy did not expand either, and they warn that a consumer-led recession could be more severe than the relatively mild one earlier this decade."
A consumer-led recession?! Let's pin this one right on the backs of the American people, why don't we? Whether it's the mom trading down from sugary brand-name cereal to generic 'Os, or me taking the subway instead of a cab--it's our fault we're in this situation. Whiners!
Or maybe people "feel poor" because they've been living outside their means for a decade and a half. And the funny thing about an unsustainable level of debt-financed spending is that at some point it has to end.
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3 comments:
My daugther was caught up in this mess when she made a bad decision and got a sub-prime mortage. So I blame her and the many thousands like her. I also blame the mortage companies for creating such a risky mortage. Everybody else was just trying to get a little slice. So the stock went south - you win a few, you loose a few. No reason to whine about that. But now I and others like me are $700b more in debt. If that is not something to whine about I do not know what is.
This is what, in finance and economics, we call a self fulfilling prophecy. I doubt this isn't laying "blame" rather than indicating that this particular downturn will be caused by a contraction of consumer spending as consumers begin to save more and more in anticipation of rough times... and it's the very actions spurred by anticipating the downturn that will ultimately cause it.
My wife and I have managed to live on about 55% of our gross income for the last 5 years. We sock away the maximum into our 401K and our Roth IRA and our son's college education fund every year and have one year's worth of living expenses stockpile in cash as a rainy day fund. We don't make shed-loads of money. Just under $120K combined income on the West Coast which isn't a massive amount relative to cost of living where we live.
What is our secret? We just don't spend that much and don't buy things we don't need. We also have only one child. Neither of us drive a car that is less than 10 years old but we keep very good maintenance of those cars. I don't anticipate that we'll need to replace either of our cars for another 5 years or so.
I did this by reading and following he advice in a book called "The Millionaire Next Door". The advice in the book may not make you a millionaire but you will be able to survive a severe downturn even if you lose your job for a year. We were profiled in the Wall street journal in a personal finance column.
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