Some recent LA Times articles detail the insanity of the consumer based economy in the U.S. in the last few years. These should give pause to researchers who think consumers always think rationally when making lifestyle choices. It is these kinds of decision-making that is causing this prolonged recession here and worldwide.
A lengthy article about people down in the dumps in Las Vegas shows this with perfect clarity. One woman, who is an assistant for a homebuilding executive, made $28 per hour. With that income, and a "small inheritence," she felt secure enough to buy a Mercedes S500. She and her husband, who worked at a golf course, bought a $417,000 home and paid thousands of dollars for remodelling. At her home she has a pool with FIVE waterfalls. Now she has been laid off and is currently unemployed.
Another article discussed the hardships California state employees face when they are furloughed for several days a month due to budget cuts. One couple, who made a combined $70,000 a year working for the workers' compensation insurer, suddenly had difficulty paying their $3,200 per month mortgage. So they rented out that home and then "took a town house" whatever that means. Well their tenant couldn't pay his rent so the couple couldn't make their mortgages on the original house and the town house. Their car was repossessed at their place of work. Now they live with their families.
Excuse me? What are these people doing spending so much money on this level of income? Who can justify buying a Mercedes S500 on $28/hr? I make several times that income and I still won't allow myself to trade in my trusty 2003 Honda Accord. And what idiot banker (I bet it was Countrywide but pure speculation) would allow a $3,200 monthly payment with an income of only $70,000? That is over 50% of their monthly gross income. Is it any surprise the United States is the largest debtor nation in the world, if not its entire history? In the future, cash (maybe the euro or the yuan) will be king again.