I did not see Obama's speech last night – I was too tired to watch it after a couple of long days at work and little sleep. I did read the text this morning in the NYT and was mostly satisfied with what I read. The tone is upbeat (more honest than we have been used to over the past 8 years) and there are good things in what he proposes. But the one thing I did not read was any acknowledgement that Americans have been and still are addicted to debt.
I read it was important to start lending again. I read that banks and regulators were going to be accountable. I read that we needed to be able to finance that college education or new car. What I didn't read was that we need to stop borrowing so much and saving so little.
Why is that still some sort of taboo topic? Why is it not OK to say to the American populace, “hey, stupid – don't have three credit cards with balances that are larger than your annual income”? Why is it not OK to tell people that not everyone can AFFORD a new BMW or a McMansion? I'll accept that many credit card offers in the mail seem just too good to pass up, and that all that credit is tempting – but come on! Like Chris Rock has noted - “Just because you can drive a car with your feet don't make it a good idea”.
In 2002 the San Francisco Fed reported in a letter regarding savings rates:
“From 1980 through 1994, the U.S. saving rate averaged 8%; thereafter, it fell steeply, and since mid-2000, with allowance made for the tax rebates that boosted household saving in the months of July, August, and September 2001, it has averaged approximately 1%. By contrast, the personal saving rates from 1980 through 2001 averaged 13% in Japan, 12% in Germany, and 15% in France, with no steep declines after 1994; in fact, in France, the saving rate rose slightly. For the United Kingdom, the personal saving rate was close to the U.S. rate during the 1980 to 1994 period, averaging 9%, but it has since declined only modestly to an average of 7% after 1994, while exhibiting very large swings throughout the sample period. For Canada, the personal saving rate did decline sharply during the latter half of the 1990s, but it is still higher than the U.S. rates, averaging 16% from 1980 through 1994 and 7% since 1994.”
And that was before we actually went negative in 2005. Today, we are moving back into positive territory and as of the end of 2008, we are just below 3%. But we still have a long way to go to get to where most other G20 nations are, and to add to our problems, we carry more household debt than anyone.
Just getting credit thawed won't get the economy running again. First, we need people worthy of getting loans to apply. Most people who don't absolutely need money today are not borrowing, so who's going to be looking for a loan? Oh, that's right - people who are high risk. Just what we need - more bad debt. Is anyone else seeing an issue here?
Now, I do agree that there was and (still is) predatory lending, confusing paperwork and too many other bad practices out there for the banks not to be blamed for a good part of this mess. And we encouraged people to borrow more and more without consideration for tomorrow - just like our government does. But Americans should have understood that all their debt was going to be a problem at some point - yet we ignored common sense for euphoria over a new plasma TV (to watch bad shows, no less).
The other thing we need to do is to stop believing that adding money into our retirement accounts is going to get us anywhere. People, those funds are invested. That's another reason why we are broke. We put no cash into an account at the local bank, but "save" significant amounts into retirement (which goes right into the stock market) and thus we find ourselves with no cash on hand AND smaller retirement savings than we planned on. I have stopped the retirement garbage. It's my money - I worked hard for it - I will take care of it, thank-you.
To read Obama's speech, you could be forgiven for thinking that we just need to free up credit lines so we can borrow again. But is the problem really that we can't borrow – or is it that we have already borrowed too much? I'm happy that the bankers and the regulators are going to get scolded for their role in all of this, but I think Americans need to be taken to task as well for being so greedy and short sighted.
Some times you just have to take a good, long, hard look in the mirror to see your problem.