While the recent sharp downturn in the nation's financial foundations might have seemed to happen overnight, an economic crisis of this magnitude never occurs without a gradual yet progressive number of interrelated factors.
Evolution of an Economic Crisis
Record-high gas prices, escalating consumer debt levels, a plunging real estate market, easy access to credit, and a culture of conspicuous consumption primed the wheel for the financial drama now playing out on the national stage.
What has always worked to move the economy in the United States, a loosening of credit criteria, lack of financial institution oversight and a lend and spend mindset between banks and consumers, has in convenient hindsight been a catastrophe in the making. Within a culture of too-easy access credit and flimsy mortgage backed securities, the flaws within this "get it while you can" money flow system gradually seeped into the collective unconscious - the mainstream psyche, and thus defined the “American Way.”
The country never noticed what they were doing to themselves because no one reminded them to.
Moreover, the American Way has become the brand of the United States with loose credit capitalism and largely unencumbered free enterprise. Both are founded on hugely successful economic systems that have proven more effective than all others. Yet the collective branches of society, the people, government and business inched away without much notice, from what has maintained its success in the past, consumer and lender responsibility, uncompromising ethics, and institutional checks and balances.
The entire nation on some level knew what they were doing; they just never noticed what it was doing to them, or in the case of the sub-prime mortgage lenders and investors -- never cared. The United States is now riding on what appears to be an unstoppable conveyor belt towards losing its top ranking within the global hierarchy. With such a massive tipping point, often comes a new way of thinking.
Tipping Point Leads to Consumer Paradigm Shift
According to Edmund L. Andrews and Jackie Calmes in the December 17, 2008 New York Times article, “Fed Cuts Rates to A Record Low,” the Federal Reserve cut federal-fund rates to zero in a desperate effort to revive frozen credit markets and to stimulate bank lending and consumer spending.
Some economists feel however, that despite the fact that money is now “on sale,” making it easier to pay credit card debt and afford equity loans; lowering interest rates might not be the golden ticket to boost consumer confidence. Americans are too worried about losing their jobs to assume more debt, while banks are unwilling to lend to people they view as a high credit risk. People are too scared to borrow what they might not be able to pay back and banks are reining in loose lending standards, two changes in fiscal behavior that in hindsight, seem long overdue.
This involuntary shift to how consumers and institutions view and manage money flow could move this once-or-twice in a century economic crisis into the next critical phase of social change: a complete paradigm shift. The nation might be ready to adopt an entirely new belief system about how to ensure the health of an economy. Consumers, lenders, bankers, investment firms and leaders will likely have to permanently alter how they now operate liquidity levels and money systems.
Americans Re-evaluate Definition of Success
The descent of the United States from an economic superpower to a nation with shattered financial confidence here and abroad, is no longer just an Orwellian panic attack but rather a reality check. It's unlikely the basic tenets of capitalism no longer operate, rather, individuals and institutions exploited their freedoms.
Americans may return to pre-industrial era values, spending on what they can afford and learning to enjoy what they can afford. Financial institutions will continue to tighten their lending belts while the surviving investment firms will re-structure how they leverage investment capital.
In an August 8, 2008, U.S. News & World Report online article by Kimberly Palmer, “The End of Credit Card Consumerism: a new frugality could remake the U.S. economy – and American life,” Merrill Lynch economist David Rosenberg suggests, “The process of bringing our wants and our needs into realignment is going to involve years of savings and frugality.” Marian Salzman, chief marketing officer of Porter Novelli offers her concise view, “There is an anti-bling thing going on.”
A new way of thinking is indeed, on the horizon. Palmer cites a survey where people ranked being in control of their finances and living a green lifestyle as a better indicator of success than owning luxury items or paying off their mortgage. Alan Blinder an economics professor at Princeton University and former Federal Reserve vice chairman suggests the new mindset won't be permanent however. Once the economy returns to safe levels he predicts Americans will resort to their old spending patterns because it's hard-wired into their DNA.
This ultimately means the X and Y generation, the trustees of the current financial mess, will not only have to drastically re-pattern their beliefs about money and spending habits, they'll have to re-define the entire American Dream. The question is, are they willing to do it?
Laura Owens - Laura Owens has a B.S. in Psychology from Rollins College & U of FL. She is a freelance writer with expertise in motivation & wellness.
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