The weight of credit is now crushing down on the middle class. Bob Herbert in the New York Times discusses how many Americans have been living in “A Fool’s Paradise” whereby stagnating wages were supplemented by easy credit to fuel higher spending. In other words, most of us were living beyond our means. Herbert writes:
We’ve been living for years in a fool’s paradise atop a mountain of debt. The masters of the universe on Wall Street lost all sense of reason, no doubt. But most of us have been living above our means through the magic of easy credit, ever lower taxes, ever rising property values, stock market bubbles and the gift of denial, which we used to assure ourselves that the bills would never come due. We’ve even put our wars on a credit card.
The burden of debt for a typical middle-income family, earning about $45,000 a year, grew by a third in just the few years from 2001 to 2004, according to the Center for American Progress. The reason for this unsustainable added weight was the rising cost of such items as housing, higher education, health care and transportation at a time when wages grew only slightly or not at all.
In other words, work was not enough.
Bethany McLean echoes these thoughts in her opinion piece “The Borrowers” in the same newspaper. She writes:
But who made the decision to take on that mortgage she couldn’t really afford? Who lied about her income or assets in order to qualify for a mortgage? Who used the proceeds of a home equity line to pay for an elaborate vacation? Who used credit cards to live a lifestyle that was well beyond her means? Well, you and I did. (Or at least, our neighbors did.)
Sadly, she notes that it is the middle class consumer that will feel the pain the most: “a bailout would stick us with a disproportionate amount of the bill.”
What can we do? The only thing that we can do is aim for survival. The days of easy credit are gone, and the present collapse will usher in a new age of frugality. We have to be prepared.