Our standard of living has increased compared to generations past. All thanks to credit, we live in bigger houses with better amenities. We drive fancy cars with all the gadgets. On the other hand, our quality of life and happiness is a whole other topic.
Well, Rustico, is this sustainable? It depends for how long. 50 years?
Did you read about the development of credit industry? There was also a Frontline show on that topic. By lowering monthly payments, they grew the industry, made more profits and provided credit to about the entire population. They don’t loose anything until debtors en-masse stop servicing their debts (hasn’t happened yet). If defaults increase, they increase rates and fees to make up for the loses. Consumers benefit in that they can get the goods right now. The trade off is indebtedness which the consumers willingly take on.
People these days don’t think about purchase prices (the Realtors will tell you that). They think in terms of monthly minimum payment costs of housing, transportation, clothing, etc… It is a form of servitude. However, unless you’re independently well-to-do, you have no choice but to participate in order to fit in your social group. It’s part of our society now, and the richer a person is, the higher that person’s debt is.
Perpetual credit first started with TVs and washing machines, then cars and now houses. Leasing cars was considered crazy in the 1980s but the majority of cars are now leased. Drivers are used to trading cars and as long as the monthly payment is within their budgets, they are OK with it. Buyers live about 5 years in their houses and continually trade from one house to another; racking up fees, points and transactions costs and never paying off their homes.
I think that this credit regime has staying power and will last as least until the boomers are 5 years into retirement (sorta like society’s ARM reset), despite the coming housing recession.
