The Dismal Art

Were economics truly a science, the world would not be in its present economic straits and your mortgage would not be underwater. There would be more principles on which people could rely; e.g., if your temperature is 98.6 you are a) alive and b) you do not have a fever. Greece would still be a nice place for holiday and California yet the Golden State. Thus, when I tell you that the present is but a taste of that which is to come, I have no offer of proof on which you may rely or take rational notice. Neither does Roubini. In fact, financial wizards are usually created out of one well-timed, fortunate prediction. No seer does it twice. Cf. Alan Greenspan.

Nevertheless, some principles are in focus. First, credit, as Americans have known it for the last 40 years, is dead, finished. People are far more cautious and credit-based businesses are slowly winding down. There will continue to be credit cards as they are very useful in purchasing. The change in the credit world will be that fewer people will have more controlled access to far less credit. Gone is having $250,000 in credit availability supported on a gross income of $100,000. Figure on $10,000 to $15,000 if you have a sterling record and a >720 FICO. Imagine the effect that has on retail purchases or deluxe vacations.

Second, renting will lose the stigma of being for losers as so many more Americans will rent rather than buy. They will have to rent as jobs will grow more scarce even as salaries and wages fall relatively lower. Mortgage credit will be available only through limited federal support and to the "rich" who, Biblically, are always with us. What will make this a bit more palatable is that asset deflation and federal subsidies of food, clothing and utilities will increase the purchasing power of money for the working class.

And this means what?

The "go-go" days are over. Growth should be slower but steady. The billionaire's ranks are unlikely to grow rapidly but the typical American should do better if (s)he simply realizes getting rich quick is less likely. Get rich slowly is the new paradigm.

That's my prediction for which I may or may not become famous.