Andy Hardy’s Home Mortgage

For some reason I am fascinated by the way things used to be in contrast to how things are today.  When was the last time you watched an Andy Hardy movie?  Life in the 1940s seems so simple and less stressful.  I don’t know for sure, but I doubt that Mr. and Mrs. Hardy had a mortgage and all the stress that comes with debt.  Back then people didn’t borrow much.  Life was slower back then, but so was the economy.

Just think about an economy with no credit.  You would have to save up to buy everything.  You knew that your washing machine would wear out someday.  So you saved a little each paycheck to have the cash to make the purchase.  You saved today to buy something in the future.  If people and businesses never borrowed to make purchases, the speed at which we made purchases was slow.  It was a slow economy.

Particularly in the 80s and 90s the use of credit exploded.  It became socially acceptable to have a fistful of credit cards.  Some of us borrowed far beyond our means to buy large homes that we couldn’t afford to furnish all the rooms.  For a few decades we leveraged up.  We bought today to pay it back in the future.  The speed at which we bought stuff accelerated.  It was a fast economy.  That is, until 2008.

This month the Wall St. Journal reported that U.S. household debt is down by $833 billion and is back to 2003 levels.  The amount of debt compared income is now in line with the long-term trend from 1950-2000.  The fact that consumers are borrowing less to buy less is part of the explanation of the current slow economy. Many economists expect the deleveraging of household credit to continue for several more years.

Of course I don’t expect us to revert back to Andy Hardy days, but manageable debt is a good thing.  This credit crisis had taken its toll on our confidence about the future.  We have lost our homes.  We have watched our friends and family lose their homes.  It takes a while to get over that.  But we will.