Here is a comment I want to share from someone who posts under the name “Nancy Drew” on this blog. Nancy Drew writes …
Our daughters are 15 and 17. Most of their friends are very concerned about their parents’ financial situations and tell me their parents have too much debt. Whether their parents know it or not, these kids know exactly what is going on and they are scared.
My oldest daughter told me this week that her friend “K”‘s mother is jealous of me. I asked her why, and she said her friend’s mother thinks I never worry about money and seem carefree. I told my daughter that is only because we don’t have debt.
I reminded her of the years when her friend K’s family went on cruises while we were tent camping in a state park. I told her that her dad and I made a decision when we first got married that we weren’t going to buy anything, not even a car, until we had the cash to buy it.
We previously had a mortgage, but we paid it off in 13 years. I told her we just didn’t want the stress. She gave me a hug and walked away without saying anything.
Congratulations Nancy, not only did you make wise decisions you taught your kids well.
Political Will vs. Consumer Psychology
The biggest and most futile fight Bernanke faces is changing attitudes towards debt.
Flashback February 19, 2009: Fiat World Mathematical Model
What happens next depends somewhat on the political will of the central banks and politicians. However, it depends more on the psychology of the borrowers. If consumers and businesses refuse to spend and instead pay back debts (or default on them along with rising unemployment), the picture simply is not inflationary, at least to any significant decree.
The credit bubble that just popped exceeded that preceding the great depression, not just in the US but worldwide. Thus, it is unrealistic to expect the deflationary bust to be anything other than the biggest bust in history. Those looking for hyperinflation or even strong inflation in light of the above, are simply looking at the wrong model.
Flashback June 25, 2008: Peak Credit
Lessons Of The Great Depression Forgotten
The lessons of their great grandfathers who lived in the great depression era were forgotten. Over time, everyone learned to ignore the dangers of debt, risk, and leverage. Belief in the Fed and the government to bail out any problem are ingrained. Bank failures are distant memories.
Peak credit has been reached. That final wave of consumer recklessness created the exact conditions required for its own destruction. The housing bubble orgy was the last hurrah. It is not coming back and there will be no bigger bubble to replace it. Consumers and banks have both been burnt, and attitudes have changed.
Children whose parents are being destroyed by debt now, will keep those memories for a long time.
For more on attitudes please see:
- Changing Social Attitudes About Debt – February 25, 2008
- Moral Obligations Of Walking Away – February 7, 2008
- Attitudes Lead, The CPI Lags – March 19th, 2008
- A New Phenomenon: Haggling Over Prices – March 23 2008
- Cool to Be Frugal – April 24, 2008
- The Future Is Frugality – August 10, 2008
- The Age Of Frugality – October 19, 2008
Moreover, students fresh out of college, six-figures deep in debt, face decades of debt slavery.
Both parents and students are wondering what went wrong as noted in Subprime Goes to College; Students Buried in Debt; Who is to Blame
Note the bad policy decision (Pell Grants), that helped fuel the problem of rapidly rising costs of education.
Please see College Grads about to Flood Labor Market; Class of 2009 Still Without Jobs in Deep Trouble for still more details on the plight of students.
Attitudes towards education and education costs have certainly started to change with some starting to question the value of an education and what they are willing to pay, even as the Obama administration tries to keep the education bubble alive by throwing more money at it.
Every place you look, be it housing, education, or public unions, attitudes towards debt, lending, and the role of government are changing. It is precisely those changing social attitudes why Bernanke is losing and will lose the battle against deflation.
The sad irony is Japan has proven it is a stupid battle to be fighting in the first place.
Those fretting over base money supply and foolishly screaming hyperinflation (or even inflation), simply do not understand the dynamics of debt deflation, nor do they understand how small the increase in base money is compared to debt that will be written off, nor do they understand the role of changing social attitudes towards spending.
Mike “Mish” Shedlock
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