Thursday, October 8, 2009

Home equity, savings and the current economic crisis.

A recent quote from David Goldman ("Spengler") helps put the role of home equity in context in today's economic crisis:
Americans have saved almost nothing during the past 10 years, relying instead on home equity that now has vaporized. The proportion of Americans over 60 will jump to 25% from 19% during the next 10 years, an unprecedented shift. Americans must save to compensate for past profligacy, from a lower starting point after the destruction of so much wealth, and with lower prospective returns.

Remember, equity in an inflated asset does not take the place of actual savings.

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