Tuesday, February 5, 2008

Shift toward thrift could change U.S. economy

Analysts say a shift toward thrift could have huge implications for an economy driven largely by consumer spending. Interested in your thoughts - what is going to be the impact?

In the 1950s and ’60s, as credit cards grew in popularity, many began dining out when the mood struck or buying new television sets on the installment plan rather than waiting for payday. By the 1980s, millions of Americans were entrusting their savings to the booming stock market, using the winnings to spend in excess of their income. Millions more exuberantly borrowed against the value of their homes.

But now the freewheeling days of credit and risk may have run their course — at least for a while and perhaps much longer — as a period of involuntary thrift unfolds in many households. With the number of jobs shrinking, housing prices falling and debt levels swelling, the same nation that pioneered the no-money-down mortgage suddenly confronts an unfamiliar imperative: more Americans must live within their means.

2 comments:

Bethany said...

An obvious potential impact of thriftiness is a decline in employment. If Americans buy less or less expensive items, businesses will lose money and could cut jobs as a way to minimize loss. Higher unemployment could put a greater strain on government welfare programs. This cycle could end up encouraging more people to spend less, thereby lowering economic activity even more.

I don't think that simply telling Americans to spend more is a viable solution; if it were that easy, people wouldn't have to be so thrifty now.

Jennifer said...

I agree with Bethany. Especially as we graduate and enter the workforce I fear entry-level jobs are going to be scarce.
The headline of the article seems like an obvious projection of the near-future, but when one begins to comprehend how many facets will be affected by a thrifty economy the issue is no longer cut-and-dry.
This also comes at a time when Bush seeks trillions of dollars for a national budget, when the stock market is slowing and when the war is becoming increasingly expensive. How is personal spending going to be anything but frugal?

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