New York Times Calls a Sea Change in Consumer Attitudes Towards Debt

While the New York Times gives plenty of caveats, its story,”Economy Fitful, Americans Start to Pay as They Go,” says the American love affair with debt has gone sour:

But now the freewheeling days of credit and risk may have run their course — at least for a while and perhaps much longer — as a period of involuntary thrift unfolds in many households. With the number of jobs shrinking, housing prices falling and debt levels swelling, the same nation that pioneered the no-money-down mortgage suddenly confronts an unfamiliar imperative: more Americans must live within their means….

The shift under way feels to some analysts like a cultural inflection point, one with huge implications for an economy driven overwhelmingly by consumer spending.

While some experts question whether most Americans, particularly baby boomers, will ever give up their buy-now/pay-later way of life, the unraveling of the real estate market appears to have left millions of families with little choice, yanking fresh credit from their grasp.

“The long collapse in the United States savings rate is over,” said Ethan S. Harris, chief United States economist for Lehman Brothers. “People are going to start saving the old-fashioned way, rather than letting the stock market and rising home values do it for them.”

In 1984, Americans were still saving more than one-tenth of their income, according to the government. A decade later, the rate was down by half. Now, the savings rate is slightly negative, suggesting that on average Americans spend more than their disposable income.

A telling anecdote: a couple that earns $55,000 a year got into debt keeping up appearances and has had to cut back considerably. They now looks at a Cadillac-owning (likely leasing) neighbor with pity rather than envy, imagining that he too is over his head.

If conspicuous consumption (at least in the middle classes) is no longer a barometer of success, that will create fundamental challenges not just for marketers but also for manufacturers. One implication: consumers will be less willing to trade up to new products, and will expect new purchases to last longer. That may lead to a willingness to pay somewhat more for something with the notion that it is an investment rather than something they will keep for a year or two. Put more simply, buyers will increasingly think of goods as durables rather than disposables.

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  1. "Cassandra"

    There appears to be a feedback loop at work here: the more debt people take on, the easier monetary fiscal policy must become (to avoid negative growth), the easier fiscal and monetary become, the greater inflation; the higher inflation the more the logic of saving less, and gearing up is validated; the greater the debt the greater the leverage assumed, the more inconceivable it becomes that fiscal and monetary authorities would voluntarily torpedo The People. And so on.

    What stops it? Common sense and Paul Volcker aside, perhaps when the Peacock can longer fly because of the hindrance of its absurd and unsustainable tail, the more likely it is to become the victim of predation.

  2. Gavin

    Wrong, doug.. it’s the patriotic duty of Americans to purchase products that last. Good troll effort, though. Coincidentally, it’s the patriotic duty of American companies to produce products that last. For that reason, Ford and GM are functionally bankrupt — they consciously chose to not invest in reliable manufacturing techniques.

    Conspicuous consumption has always and will always be gratuitously excessive.. and un-American.

    Cassandra, we need Volcker even more today to take the place of the show ponies nominally called Fed governors. The continual kowtowing by American political leaders to I-banks who aren’t invested in America both sickens and disgusts me.

  3. "Cassandra"

    There are lots of ways to (keeping the metaphor) “prune the tail”, but the tail will, eventually, be pruned. My line has rather consistently been that there are diminishing marginal returns to this loop over time, as the growth in debt required for associated growth in output increases, making the resulting destruction wrought in the future dislocation GREATER THAN the benefits derived from the interim gain in, and continuation of growth. I am not a sufficiently adept economic modeler to prove this out myself, but I believe it to be true until a reasonable case is made otherwise. I do think however, that if you are a policy-maker and are going to recommend borrowing yet another $140bn from future growth, AND further distort the bond & FX markets with ST rate policy, it should be incumbent upon them to prove-out the cost-vs-benefit on something firmer than the woolley-ones resembling Willie Nelson-like platitudes about the plight of the family farmer.

  4. Deborah

    I think consumers will look for quality for durable goods rather than look to goods as disposable. I am only willing to pay more it the quality is such that it seems worth more.

  5. Anonymous

    Funny line, ‘durables instead of disposables’.

    My data points are that goods are rapidly getting more disposable simply because they fall apart: a Made In China (quality fade) phenomena, I think.

    For example, two kitchen rugs. Purchased from major, different, retailers. Both from China. Fell apart after being washed twice.

    Kitchen timer, top of the line brand. The magnet was too small to support its weight and fell off entirely after a few days. From China also.

    NOTE: I bought this stuff from China because there was no alternative to China sourcing in the stores where I bought these products.

  6. Anonymous

    Demographics are also at work. Large number of boomers reaching are 55 and the balance are over 45.Fifty-five is a key since it generally begins a period of decline in spending and more savings simply based on household demands with kids moving out and graduating from college etc.
    Main stream media will never cover such news in any detail but as this so called change in consumer behavior begins to pick up speed my guess demographics will play a large role.

  7. Anonymous

    Does this mean there will be fewer flappers in The Great Depression ll ? Who is Gatsby and will Buffett have to mark-to-market his unobservable $33 Billion in Level 3 “Goodwill Accounting” Assets?? Stay tuned to your radios!!

  8. Anonymous

    Re: “it’s the patriotic duty of Americans to purchase products that last”

    > Consumer confidence is directly related to the fact that inflation from the housing bubble has overvalued all most every asset in this economy!

    Furthermore, inflation today, is compounded by the fact that any future value for our economy was robbed and divided amongst thieves that transfered what we had, into something we now have lost.

    Consumers are now realizing they are contaminated by a plague which is spreading as rapidly as The Fed can help distribute it.

    Re: hen came the deluge: Stalin and his satellites found that vodka was a useful weapon to deaden the sensibilities of his terrified subjects during the Great Terror, and throughout the war vodka was issued as part of the troops’ regular rations, a step perhaps justifiable in wartime but a guarantee that the country would face a massive alcoholism problem once the war was over.

    For the next 40 years Stalin and his successors continued to pursue this policy. The price of vodka was kept low, and an official silence was maintained over the endemic alcoholism that infected every aspect of life in the Soviet Union. Vodka relieved the stress of daily existence.

    Let us drink and celebrate the victory of global liquidity!

    Na zdorovje!!!!!

  9. "Cassandra"

    Anonymous said:
    Furthermore, inflation today, is compounded by the fact that any future value for our economy was robbed and divided amongst thieves that transfered what we had, into something we now have lost.

    Ahhh Comrade…But of course The People can always take back from the thieves what was rightfully theirs, or stolen from them, at least that which was wasn’t squandered on Fractional NetJet ownership Shares or Ice-Sculptures of David that streams Vodka Martinis from his umm ahemm, yes. At the moment, however, the Median-Man still doesn;t understand that thieves have plundered the nation, and neither Ralph Nader, Bill Bradley, nor Bernie Saunders are likely candidates, let-alone victors in 2008. There is still some way to go before Americans (as a people) have that defining moment of clarity in respect of just how far-removed this administration has been from the concept and protection of, and leadership towards policies that are sustainable and in The Public Interest.

  10. Anonymous


    I am astonished by the fact that The Pension Protection Act which one would assume is for the future benefit of our citizens is now a conduit mechanism for wallstreet to rob your money markets and guarantee funds and allow hedge funds and underwriters to wrap risk layered packages of derivatives with your safe funds, versus the good’ol days when a pension plan was like a bank vault filled with treasury notes which were left to mature. Now with PPA, we have greater liquidity for derivative packagers who need the extra yield enhancing nature of your future cash flow. I have even seen cash flows from nursing homes linked to derivatives, so it is not uncommon to think in terms of a 45 year old with a 401K to think that they are in some safe haven, out of harms way in regard to massive manipulation.

    This is evil trend is like a cancer that grows insidious-like, where people may have some dubt, but it is far easier to ignore the reality behind the meanings associated with Department Of Labor granting exemptions to underwriters who package derivatives by using ERISA pension assets which are traded like Beenie Babies — m which is great metaphor, because Beenie Babies have fallen out of favor and become less liquid on the open market, just as CDOs are falling somewhat out of favor, but please remember, who will incur losses in pensions; just ask a few teachers in Florida how much confidence they have in the future value of pensions and government run mafia programs….

    More vodka!! I cant see my typepad…

    Na zdorovje!!!!! Print more money!1 We need new politicians, new wolves, new pension packages…..drink!!!

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