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December
Almost always, the American peo- The people are leading the way
ple get it right. They’re proving it once again.
; The costs of the nation’s economic collapse
are now being tallied, and you won’t be sur-
ON THE COVER: CLOCKWISE FROM TOP: INSADCO PHOTOGRAPHY/ALAMY; GAMMA-RAPHO/GETTY IMAGES; GUY CRITTENDEN/GETTY IMAGES; THE GRANGER COLLECTION/NEW YORK THIS PAGE: WALTER B. MCKENZIE/GETTY IMAGES
prised that it’s even worse than we thought.
Instead of
splurging on fancy
restaurants and
new gadgets, we
are paying down
debt and opening
savings accounts.
On the other hand, the
first solid evidence of
the people’s response
is better than anyone
could have expected. ; First, the numbers. Since 2007, as
the housing bubble
crested, the net value
of our homes (market
value minus outstanding mortgages) has fallen by more
than half. Recent Federal Reserve statistics document
the decline in net home equity—from $12.9 trillion to
$6.2 trillion in 2011. That’s a stunning decline. The $6.7
trillion that has been lost exceeds the size of the entire
Chinese economy or the size of the German
and French economies combined. That loss
doesn’t take into account the human consequences of almost 4 million homes that
have been foreclosed and the 27 percent of
homes that are “underwater,” or worth less
than their outstanding mortgages.
For families, that vanishing wealth would
have been retirement savings, a college
tuition account or a safety net against job
loss—or all three. Today, it’s all but gone.
So how have Americans responded? They’re saving as though
they’d rediscovered a long-forgotten taste. In the current recovery,
sluggish as it is, people have divided into two groups—those who
have lost a little of their wealth and those who have lost a lot. For
context, Fed economists measured the devastating impact of the
economic crash and found that the loss of wealth experienced by
four of every 10 U.S. families was equal to or more than six months
of their annual income.
But the same Fed statistics highlight the public response.
People have stopped spending. Now they’re saving. Between
2004 and 2008, investments in CDs averaged $250 billion; that
figure more than doubled to $600 billion last year. The national
savings rate, which was 1 percent six years ago, was 5 percent last
year. Instead of spending at fancy restaurants or buying the latest
digital gadgets, Americans are paying down old debts and opening
savings accounts.
What’s the lesson?
While Congress and the rest of Washington have been paralyzed
by conflicting pressures, history and party ideologues, the people
have changed gears. Official Washington should take a page from the
people. Look at the situation they’re in. It may not be where they were
or want to be. But it is where they are. So they adjusted. The people
recognized that they had to toss the credit card and open a savings
account. Our leaders should do the same. It’s a three-step recipe:
Common sense. Compromise. Simple math. —Jim Toedtman, Editor
AARP Bulletin December 2011, Volume 52, No. 10 (USPS Number 002-900; ISSN 1044-1123) is published monthly except February and August by AARP, 601 E St. N.W., Washington, DC 20049 (telephone: 1-888-687-2277). Internet site: aarp.org/bulletin, “The Newspaper of 50-Plus America.”
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2011 by AARP. Printed in the USA. The views expressed herein do not necessarily represent policies of AARP and should not be construed as endorsements. The mention of a product or service herein is solely for information to our readers and may not be used for any commercial purpose. AARP,
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