I've looked at family balance sheets for years and years, over a wide range of economic brackets. While I can easily say some balance sheets took a hit in the last three years with the decline in stock values, over ten years there is a great deal of growth. Unfortunately, because there existed this unreasonable and unsustainable growth in the late 1990s most people feel poorer right now because they aren't looking at the longer trend. Plus, because they chose to maintain a lifestyle slightly above their means, they tend to think that their situation is deteriorating (ie. that they NEED to have a two earner household just to "survive").
Something I've talked about in the past is that some people are net worth oriented and others are cash flow oriented. For the most part the Boomer generation is far more cash flow oriented than their parents were, as long as they have sufficient cash flow to service the debt they will take it on without considering the consequences that there might be an interruption in that flow. What is interesting is that for the most part, as I alluded to earlier, this has paid off for them net worthwise. If interest rates had stayed high, these people would be screaming now, but they have been bailed out by the FED. Some will be hurt with rising rates but not nearly as much as people would think since so much of the debt was rolled into fixed low rates attached to real estate.
In Feudal times, the serfs would slowly build up debt to their Lords. This debt would build up to the point where there was no possibility of it ever being paid off and it was almost impossible to service. Whenever there was a change in power, where a Lord was replaced, everyone's debt would be forgiven, back to zero. That would start the slow process of debt build up again. Our FED lowering rates by decree is the modern equivalent of this Feudal debt forgiveness. |
