Seems like ‘Go west’ is the raging mantra these days. For those who ape the west in every walk of life from the things they shop, to the values they live, the credit crisis on the wall street came as a rude wake up call.
Americans made merry on cheap credit, and thrift became a forgotten value. The GDP was being held up consumer spending, consumers using their credit cards and refinanced homes went on a shopping binge, buying more and more of those ‘Gucci’ Handbags and Macbook Air’s.
In around 2006-2007, the American personal savings rate, the amount an household saves/invests after tax and expenses became negative. Which essentially meant that Americans were living on borrowed cash (borrowed if you are interested from more frugal and savings oriented Asian countries). At some point they could not rollover their debts to the next month or the next refinance, and they defaulted. This to some extent was how the cookie crumbled.
It was with some sense of Schadenfreude that I read about the American debt clock that ran out of digits here. Notice the debt per family number (This number includes not just the family’s borrowings but also adds George Bush’s expenditure). Amazing!!. Around $ 86000/-
Iceland, seems like tiny little country, but they picked up debts to the extent of 213% of their disposable income, which seems to make a mockery of America’s high of 140%, debts to disposable income. At some point they also could not roll over their debt and suffered a huge loss of face and the currency was decimated.
Consumerism is a great driver for an economy, it is indeed one pillars, but so is personal savings. Living within your means and saving is not just good for the economy, but also good for environment. So when you think of buying a new flat panel TV, think do i really really need it?
Can the World Stop the Slide? -An interesting Time article written beginning of the year, Stephen Roach (of Morgan Stanley) and Joseph Stiglitz talk about consumerism.
Kreppanomics – An Economist article on what happened in Iceland.
American Economy – Wikipedia Article on american economy.
American savings at record lows … and record highs – A contrarian article on American Savings, one of those that says go faster towards the train coming your way.