SEATTLE POST-INTELLIGENCER COLUMNIST
I remember my grandmother telling me about life during the Great Depression.
She said it was impossible to find a job but my grandfather found one working for the Census Bureau at $1 day. That was enough because they were frugal, even living in a onetime railroad boxcar. Things were tough, she said, not like today.
After the story, a lecture would follow about the importance of saving money -- and the evils of credit.
My grandmother would buy her new car only after she saved enough money. I remember going to the showroom with her. She'd take a car home to drive -- then the next day, she'd return and write a check. It was the way things were done.
By the time I was an adult, the world had changed. Credit is something most of us live with, count on and accept.
Now a trip to an auto dealer is more like a trip to the bank. You spend a few minutes looking at cars and gadgets -- and then far longer filling out papers and negotiating with finance folks.
This is how it's done by buyer -- and seller. If you read last week's financial reports from Ford and General Motors, it's clear that both of these corporate giants are more bank than car companies. According to The New York Times, most of Ford's $1.7 billion in net income was from its finance division, showing a slight loss for its "automotive operations." Similar numbers are shown for GM, where out of a $1.3 billion profit, $834 million was from financing.
The bank company is the successful side of the business. The car company is an excuse to lend money.
We live in an era when many of our industries sell products fueled by easy credit. It makes me wonder what will happen when the credit is tight, expensive or just cut off.
Some of those who loan money say everything will be fine.
"We can't find any evidence that there was ever a recession caused by an excess of consumer debt. It does seem that consumer debt loads may have accentuated the depth of a few recessions, but the recessions started from other causes," wrote Doug Duncan, chief economist at the Mortgage Bankers Association of America. He said most of the debt is associated with the purchase or refinancing of homes.
"On balance," Duncan wrote for bankrate.com, "I think consumers are well positioned financially. They've improved the long-term strength of their balance sheet, lowered their debt costs and acquired assets for the future. The consumer is not dead; long live the consumer."
Of course consumers aren't the only group in hock.
Businesses and governments are borrowing at record levels, too. The Federal Reserve reports the total debt burden in this country -- consumers, businesses and governments -- totaled some $34.4 trillion at the end of last year; the economy produced only $11.3 trillion.
It's as if the whole country spends more on borrowing (or lending) than making anything. Airlines, for example, announce new loan packages the way companies once trumpeted profits. This just in: Good news. United borrows another billion. The airline is "buying time."
The debt picture is staggering when you include government. Just last month's interest payment on the current federal debt was $84,468,634,709.08.
Of course we're lucky. It could be worse. We live in an era when interest rates are low. The cost of servicing our $34.4 trillion debt is manageable -- and any future interest-rate increases will be steady and affordable. Right?
Remember those banks that masquerade as automakers?
The Detroit Free Press says Ford and GM have an inventory of 3.5 million unsold cars and trucks, "the two automakers hypothetically could shut their plants the rest of the year and not sell out some of their best-known models until after the presidential election."
Time to fire up those banking engines. We consumers can always be counted on to borrow, one more time.
And if time runs out? We'd better dig into our memories and recall those frugal, Depression era stories.
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