Will The New Frugality Last?

At the end of every recession since World War Two Americans have discarded their forced frugality and rediscovered their appetite for spending. Companies began hiring again, production and purchasing of consumer goods increased and everything returned to normal. So there is really no reason, historically, to believe the end of The Great Recession will not witness the same kind of recovery, right? That could very well be the case, but for that to happen this recession will have to experience what all of the others did; namely, an end.

Before I lost my job of 18 years over two years ago it seemed that at least half of my coworkers had taken out home equity AND 401(k) loans to buy new cars, go on vacations and to remodel their houses. When the subject of credit cards would come up there would be an almost proud comparison of who had the most debt. I would garner an occasional snicker or pitiful look when I would mention having very little debt and no loans, as if I was too stupid to know what I was missing out on.

What my coworkers were doing seems to have been pretty common all over the country. When both the housing and stock markets collapsed what remained was all of that loan debt. Personal debt is at around $14 trillion, or around $125,000 per household. For this recession to end as the others did consumer spending needs to rise and companies have to start hiring. No increase in spending because of massive debt loads means no new hiring, and that will continue to be a huge roadblock to an end to this recession.

So will the new frugality last? My vote is yes, whether some like it or not, it’s here to stay for awhile.