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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: GraceZ who wrote (76797)12/28/2006 9:36:49 PM
From: GST  Read Replies (5) of 110194
 
My main thrust stands -- Americans approach life as a cash flow proposition -- how much does a house cost? It is a matter of the monthly payments. How much does a car cost? It is a matter of monthly payments. You would probably not recognize life in a society where people buy almost everything for cash -- little or no credit. We base many of our most important economic decisions by asking how much it will cost in monthly payments -- we are indeed a "cash flow society". We don't save -- we make payments. A house fits in well for many people because it fits with our cash flow logic. Even when we save we are likely to view our savings as one of many monthly payments.

Contrast our behavior with China where people -- including rich and poor -- save over 40% of their incomes. Asians look at their balance sheets and pay cash when they do buy. How many people in the US pay cash for a car? For us, it is a matter of managing cash flow -- so long as we have access to credit, it is all a matter of how much debt we can service. I am not in favor of it -- I am merely pointing out the remarkable extent to which it is true.

Education and hard work can indeed take people from poverty -- and those who did it the hard way may well be more inclined to save -- my point actually. But underneath our economy lies the logic of next months bills -- making the payments. We are devastated when we lose our jobs because we will lose everything we borrowed to buy.
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