The early Reagan years were different in that credit was not as widely available. People still paid cash back then and an Amex card was only for the business exec.
Since then we’ve moved to a monthly payment type mentality so everything is now priced according to what monthly payments consumers can afford. Hear a wife ask her husband “Honey, can we afford $20/month for that TV?”
Contrary to popular opinion, I don’t believe that the credit industry will shrink. Using computer models, the finance companies will just price-in the rise in defaults. If you’re willing to pay through the nose, you’ll still be able to get credit.
BTW, people don’t realize it but usury laws have been done away, first to allow the Paul Volcker interest rates hikes then to allow the finance companies to charge whatever the hell they want. People want to consume so they continue to borrow.
Actually, I think high interest rates is good for the careful consumers. It encourages savings and not speculation. The housing payments will remain the same, but a stagnant housing market will be rid of all the specuvestors. The reason people were gambling to begin with is because they were searching for higher return than what their savings accounts could provide.
