Remember, plank #6 in the asset bubble proof was "Denial"... I think the American people are firmly planted there (at least the non-HP crowd)
Today, the Conference Board said that Americans were more optimistic about the economy in January than they have been for more than three years.
What's so crazy about that? Well, just try and square it with the reality about what's happening to the American pocketbook.
We found out yesterday that in 2005, for the first time since the Great Depression, Americans spent more money than they earned for an entire year.
This morning, we discovered that in 2005, real wages decreased. For the first time since 1996, wages increased by an amount that failed to cover inflation. (It's sad to note that, in light of those wage figures, the Conference Board's survey shows that 21% of Americans believe their income will increase in the months ahead.) Yet consumers are convinced we're in the best of times, and they're willing to bet money (that they don't seem to have) on that belief?
Hey, I don't understand it either.
What I do understand is that things can't continue this way forever. For quite a while, American shopping seems to have been fueled by speculative gains on real estate-swapping, as well as that related trick, an "equity" loan taken out and spent on stuff -- the incredible live-in ATM.
But in the absence of real wage growth, how much longer will these good times roll? The housing bubble -- which the "where's my 6%?" home-selling industry used to take such pains to deny -- is already starting to hiss, making it increasingly likely that "mass affluent" Americans may have their mass and affluence handed to them by falling home prices. My colleague Nate Parmelee recommends the Boston-area real estate listings for an example of what this looks like.
February 01, 2006
Oh, Denial...
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5 comments:
I'm not sure where this blind optimism is coming from.
We have a whole group of yuppies who are going to get killed financially. I'll bet the same group that is going to lose their asses on their houses with the neg-am and 2,3,4 loans and cash-out-refis are the same ones driving the newest and most expensive Chevrolet Tahoe or Ford F150 around. Doesn't anyone watch the news? Iran is threatening to cut off oil supply. $3/gallon gas looks cheap in that scenario.
In a nutshell, we have a group of people who cannot sell houses because they are underwater, cannot quit their jobs because they are barely getting by, who cannot trade in their SUV to cut gas costs because no one will take them on trade and they are also upside-down in the loan. Basically the only thing they will be able to do is cry but then again that assumes they will be able to afford Kleenex.
It gets worse. The spillover from those idiots will reverbrate from the whole economy and jeopardize those of us who have tried to live solvently, jeopardizing OUR jobs due to decreased demand.
One more thing about the SUV and truck/lack of trade in. My dad said this is the same thing that happened in 1979/1980 (I was too young to remember).
1978 was a great year for truck and V8 station wagon purchases (I guess they forgot the lesson of 1973). When the fuel crisis hit in 79/80, my dad said people were walking away from truck loans left and right. People were giving away 60s muscle cars to anyone who would take them because no one could afford to drive them. (that's my dad's recollection of the times). Notice that is took until 2005 for pickup truck sales to match the sales in 1978.
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