Wednesday, May 21, 2008

The American mentality

It's worth quoting this from one of my favourite American analysts:

"Suppose the Jones family has available disposable income of $75,000 per year. Over the past
several years, however, they have spent $85,000 per year refinancing their home every 5 years or so to raise another $50,000. But that option is gone and the Jones family now has debt of $20,000 to pay down. Therefore they want to cut spending to $70,000 per year in order to get out of debt and live within their means. How do they do that in a time when food and gasoline inflation eat an extra $2,000 per year?
There are plenty of answers. They keep the car(s) an extra two years. They downsize the cost of the family vacation. They eat at home an extra two nights per week. They change their Phillies tickets to a 10-game plan. They buy fewer new outfits for the summer season. Their Saturday night dinner is at Applebee’s not Morton’s. They turn down their thermostats. Perhaps, one
works a second job part-time. In other words, they make a few adjustments, change their lifestyle and move on. None of these actions require a lot of time. All can be done almost instantaneously. Of course, not every family will change at exactly the same time but most will do so within a short period, something less than a year.
2008 is the adjustment year. It might leak over into 2009 but it won’t go longer. When the adjustment period is over, normalized growth will resume and the dollar will strengthen."

3 Comments:

Blogger kinglear said...

Yes, the flexibility of the American economy never fails to amaze me. You will have seen that Californian house sales jumped 27% in January.Get out the way and they'll get on with it. The fight-back begins!

8:46 pm  
Blogger Dave Cole said...

In short, they tighten their belts.

Can I ask who the analyst is?

1:38 pm  
Blogger Winchester whisperer said...

Hi Dave - he's called James Meyer at a firm called Tower Bridge Advisors

11:18 am  

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