In the news the last few days have been numerous articles “sounding the warning” about consumer spending habits. A good example is this article in today’s Daily News about the rising debt level of consumers. These articles all note how the American saving rate is now 0 (that’s zero, folks, not the variable O). Evidently, Americans of the current generation are not saving. This ties into what I’ve been reading in some diaries my father kept in the 1948-1952 time period. He was so proud as he was able to save money and pay things off. I think (I hope) my generation (just post-baby boomer) is a little bit better: I don’t think I’m saving anything, but then again, I’m socking 6% away for retirement in a 403(b), and letting income accumulate in investment accounts instead of taking it as a check. Supposedly, the current adult generation (is it the “me” generation or Generation X… I forget the moniker) isn’t saving anything.
The articles relate this to a desire to want things now: we no longer have the ability (it seems) to save for something. We instead buy it on credit now, and pay the bill later. They relate this to the “obesity epidemic”, which they claim is created by people wanting to eat “now” (never mind that it is more likely created by all the drugs and artificial foods we eat).
Paying the bill later. This isn’t just individual. It’s reflected in the growth of the federal debt. We’ve gone from a surplus to a deficit. And who owns this deficit? Foreign investors. There was a good article in the Atlantic Monthly (alas, subscription only) on this. If these foreign investors (much of it Chinese) refuse to stop investing in the US, our economy could come to a screeching halt. And that’s risky.
And that brings us to the next aspect of this subject: Housing Prices and Refinancing. Another common theme in the media today (especially in Los Angeles) has been the pending “Housing Bubble” (whether or not it actually exists, the media is going to create it) and the risky loans folks are taking. The key example of these risky loans is the type that I have: an Option ARM, when you can pay the fully amorized amount, interest only, or an artificially low amount that creates negative amortization. It is taking advantage of the latter two options that could get folks in trouble. This is made worse by many folks doing 0% or less down (luckily, we don’t have that problem: we were at 20% down, and we just dumped a chunk more to principle). But many folks view their house as an ATM machine (according to the LA Times), keeping up the high housing dept and not paying things down.
At least with us we intend to pay things down. In fact, I would like to refinance away from the Option ARM into a fixed 30-year (yes, even after only 3 months into the new loan–we don’t have a prepayment penalty). But refinancing is in itself a racket. Either they want points (i.e., a percentage of the loan amount as a fee) or they up the rate… and then there are closing costs. In general, it can cost anywhere between $2000 to $15,000 just to refinance; perhaps more if you have a higher rate. I just get lost in those numbers and don’t know how to judge. Does anyone out there? I’m seriously thinking of just contacting the bank that has our current home loan and seeing if they would be willing to convert it in place, since the loan paperwork is relative fresh (May 2005). Any ideas if that would work?
So, those are my musings. Where do you think the economy is headed, especially with housing prices? Are you a saver or a spender?
