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The Silver Lining

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“I think we’re undergoing a fundamental shift from living on borrowed money to one where living within your means, saving and investing for the future, comes back into vogue. This entire credit crunch is a wakeup call to anybody who was attempting to borrow their way to prosperity.”

Greg McBride, senior analyst at Bankrate.com, said that in an AP article entitled, “Is the era of easy credit over for the long haul?

My answer to that: Let’s hope.

I think we’re all well aware that this era of trickle down economics and living on borrowed time is swiftly and succinctly coming to a close. It was a nice ride for a few, a non-event for the vast majority, but regardless of our personal gains in the past few decades, we’ll all have to take an honest look at our finances and figure out what we really can and can not afford. And the truth of the matter is that most of us will have to start consuming a lot less.

At to that point…some stats…

The portion of disposable income that U.S. families devote to debt hit an all-time high in the second half of last year, topping 14 percent, figures from the Federal Reserve show. When other fixed obligations — like car lease payments and homeowner’s insurance — are added in, about one of every five household dollars is now claimed by bills.

The credit card industry lobbied heavily in 2005 to tighten bankruptcy laws to make it more difficult for consumers to seek court protection and shed responsibility for paying off debt. But in a sign of just how much households have become dependent on borrowing, the average amount of credit card debt discharged in Chapter 7 bankruptcy filings has tripled — to $61,000 per person — from what it was before the law was passed. […]

The U.S. personal saving rate dropped to well below 1 percent in late 2007 and early this year, according to figures from the federal Bureau of Economic Analysis. The figure has edged up in the last few months, but the actual savings rate may still be near zero, given that many people are covering living costs by using credit cards or money saved earlier, according to the BEA. The lack of savings is a sharp contrast with the decades after World War II. Americans routinely saved more than 10 percent of their income in the early 1970s.

Basically, if the housing market didn’t tank, we were all bound for a massive personal debt bubble sooner or later. But those bubbles would have happened one by one, personal tragedy after personal tragedy, with creditors taking anything and everything they can liquidate.

And there would be no rescue package for us, and nobody would have noticed until the economy started sinking into recession for no apparent reason.

So yes, while all of this may seem gloomy, there’s actually a lot to look forward to. A new era of personal responsibility, but for real this time.

Or as Fareed Zakaria says in the new issue of Newsweek, look on “The Bright Side“…

And scene.