It's student loan liberation day!2006-03-07
By Robert Niles: If you will indulge me a moment, I'd like to note that today marks an important milestone in my life.
It's student loan liberation day!
That's right, after graduating college in 1989 and grad school in 1992, I today made the final payment on my last student loan. Meaning, that for the first time since, oh, 1985, I am debt-free. Which also means, of course, that it is time to buy a house and to dump myself back in the red. :-(
Actually, I think I can force a theme park hook here. So much growth in the economy over the past few years, including demand for theme park vacations, can be attributed to massive increases in personal debt. Interest rates have been low, which encourages people to borrow rather than save. Credit card companies have all but abandoned lending restrictions, issuing cards to just about anyone, for often ridiculously large amounts. Mortgage companies have almost single-handedly fueled the nation's housing boom, ditching historic lending guidelines and offering no-principle and negative amortization loans to borrowers who could never afford to make payments under a traditional home loan.
On the coasts, where there's less undeveloped land for new housing construction, that influx of new mortgage cash has served to grossly inflate the price of housing, increasing current homeowners' paper equity, which enables them to borrow more. Some of that borrowing, from credit cards and home equity loans, have financed vacations, with theme park resorts like Orlando being among the nation's top destinations.
But I am an anomaly. Most American consumers are falling deeper in debt, not climbing out. Real wages have been falling in America over the past couple years, and have shown almost no growth over the past three decades (save for a brief rise in the mid- to late-1990s). When families have more to spend, it is usually because they have more to borrow.
Home prices now are falling on the coasts, and lenders are no longer issuing the negative-amortizations loans they were so eager to write when prices were increasing by double-digits each year. Will a decrease in the number of available buyers result, forcing home prices -- and available equity -- down further? Will a slowdown in the free flow of lent money trigger a recession that will reduce people's discretionary spending, including travel? What happens this summer to theme park attendance then?
I know that a lot of people in the industry are worried. Personally, I'm looking forward to a lot of travel in my first debt-free year. But there might not be enough people like me to make up for those people who are finding that their credit card and mortgage bills might make a vacation impossible, this year or next.
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