Monday, May 11, 2009

New Values? I Doubt It

Smack in the middle of the May 2009 issue of Money magazine is an article entitled "How the Crisis Is Changing You." It's authored by Dan Kadlee. The gist, as you could likely guess, is that this recession will have a lasting (beneficial!) impact on the U.S. consumer.

Some argue that when the economy recovers, our new embrace of thrift, nesting, and altruism will end along with our fears of Armageddon. Certainly, Americans will borrow and spend again. But it won't be the same as in the pre-crisis era.

And similar thoughts are offered in a recent New York Times article:

NY Times: Shift from Spending to Saving...

From that article:

Fearful of job losses and anxious over housing and stock declines, Americans are squirreling away more of their paychecks than they were before the recession. In the last year, the savings rate the percentage of after-tax income that people do not spend has risen to above 4 percent, from virtually zero.

This happens in nearly every recession, and the effect is usually fleeting. Once the economy recovers, Americans revert to more spending and less saving. Over the last 30 years, the savings rate has fluctuated from over 14 percent in the 1970s to negative 2.7 percent in 2005, meaning Americans were spending more than they made.

This time is expected to be different, because the forces that enabled and even egged on consumers to save less and spend more easy credit and skyrocketing asset values could be permanently altered by the financial crisis that spun the economy into recession.

As the kids would say: Orly?

I say: Just give it time, boys. Over the last thirty years or so, the American consumer has repeatedly shown himself to be, on the whole, a mindless spending machine who pays little regard to the usual "What if?" situations in life.

So long as the "bad incidents" like this recession and that of 2000-2001 (neither of which have been all that "bad" by historical standards) roll along only once in a while, then Silly Spending Steve is all good.

In an exclusive nationwide survey conducted for this magazine earlier this year by Marketing & Research Resources, nine of 10 respondents said they have changed the way they manage their money as a result of the economic crisis; seven of 10 said their priorities are shifting as well; and a whopping 94% said the recession will have a lasting impact on the way they handle their finances.

Sorry, but I don't buy it. It's gonna take something way bigger than what we've seen so far to bring about a truly "lasting" impact. By "lasting," I mean longer than a few years.

I seem to recall hearing all this same "But we've changed!" schlock right after September 11, 2001, too. And look how long that lasted. A handful of years, tops.

Remember? Within four or five years a large segment of us were right back at it, buying McMansions with upper-six-digit price tags and parlaying the newfound "instant equity" into HELOCs (Hi, Corazzis!) and plasma TVs and weekend RVs and Caribbean vacations.

Thanks to an extravaganza of gubmint stimulus and debt-market manipulations, I have little doubt that we'll be back in our customary role as cheap-debt junkies soon enough. The only thing that'll change my view is that if the economic situation worsens from here — as in, the bottom falls out at some point.

We know that the Great Depression changed people FOR LIFE.

Nothing I've seen in the last year or so would lead me to believe that we've achieved such an outcome this time.

But Just Maybe...

Could a larger meltdown occur going forward? Sure. I wouldn't rule anything out. Actually, the fact that so many people (like Dave Ramsey) insist that another Great-Depression-like event "can't happen" because of all the economic "safety valves" we've put in place ... well, that sort of talk circulated about the "unsinkable" Titanic, too.

Too bad nobody told the iceberg.

History does have a way of crushing hubris under its boot.

Whether the uber-consumer mentality will be a victim of this recession remains to be seen. As of today, if this is all the pain we get, I really doubt it.

Thirty years of "Debt is your friend!" spending won't go away so easy.

We haven't seen "bad enough" yet.

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— Posted by Michael @ 8:50 AM


I agree with your premise, most Americans will not maintain any so-called fiscal change they have made.

Look at dieters, they lose the weight and then most regain it.

The only time change is permanent is when their is a significant and permanent mental change. And things have not gotten nearly bad enough economically for that to happen.

I do not wish for another depression, but that is what it would take for a permanent change to the way most Americans overspend.

Anonymous Anonymous
, at 5:00 PM, May 15, 2009  


You're spot-on. It's going to take something much worse than what we've seen so far.

(Not that I want that, really, but sometimes the lesson has to be learned.)


The real shift for me is now as friends live in fear and save like never before. I am taking my debt free lifestlye an using my saved wealth ,that they used to laugh at, and investing in value stocks that have depressed. Proving that Buffet and Graham were not far off that one should be greedy when others fear and fear when others are greedy.

Anonymous Anonymous
, at 5:23 PM, May 20, 2009  
** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]


Savings Goal: $15,000
Currently: ~$15,115
[About Our Liquid Savings Goal]