End of the Credit Line

Paul Krugman with a sobering assessment of consumer behavior in the wake of the credit crunch.  The simple assumption is that consumers that previously leaned on rising home values to tap equity are now, as those credit lines dry up, leaning on their credit cards.  Which means they’ll be overextending themselves in (at least) two areas now.  What also probably isn’t realized by many of them is that credit card companies will be reacting to the credit crisis by raising interest rates.

The a lesson in here, as well a larger looming danger.  The lesson is to keep in mind that in all of the finger-pointing surrounding the bailout bill and the mortgage crisis, lawmakers will be loathe to admit that the American consumer played a large part in this.  Lots of people willfully and knowingly entered into mortgages they couldn’t afford, and as this piece shows, there are a lot of subscribers to lifestyle inflation who still aren’t able to rein it in and tighten up.  I imagine some have dug too deep a hole to simply climb out by cutting back.

The danger is that all of this is percolating on the outset of the Christmas season, meaning shoppers will have to pull back their spending, leading to a bad holiday retail season, leading to further economic woes.

Drink, anyone?

Tie goes to the (front)runner

Okay, it’s roughly midnight and I’m trying to erase all memory of tonight’s Georgia game, so let’s discuss last night’s presidential debate.  If you’re remotely familiar with SEC football you’ll excuse all spelling and grammatical areas at this time.  I’ll correct them in the morning.

So…the debate.

My brass tacks take on Friday’s debate is that if you went in with a preference towards one of the candidates, you probably think that candidate won.  McCain fans probably think McCain edged out a victory, and Obama supporters likely think the same about their guy.  No major punches seem to have been landed by either side, and more importantly no major gaffes were made as well.

There were things worth noting.  I thought McCain, on the whole, looked better than he had in most of his recent campaign events.  He got off to a sluggish start but seemed to kick into gear after about 20 minutes, and if you watched him sleepwalk through some of his recent rallys you had to consider this an improvement.  That being said, he seemingly refused to engage Obama at all during the debate, to such degree that he wouldn’t even make eye contact with the man.  I felt it came off as petty at best, and somewhat dismissive and disrespectful to boot.  NBC’s split screen caught him on numerous occasions doing his own version of the sigh that buried Al Gore.  In McCain’s case though, it was more akin to an angry glare towards his own lectern, occasionally punctuated by a weird grin.

Obama came across as very composed, and managed to seem measured and professorial without edging towards aloof or haughty.  He was more forceful than I’m used to seeing him, but tempered it with moments where he pointed out his agreement with McCain.  This probably provides some ammo for the McCain campaign, but nothing major.  I was surprised with how well he fared on foreign policy — if this debate was a litmus test for his chops in this area, he handled it adeptly.

On  the economy, both hedged, and somewhat understandably.  Pressed on the bailout package, neither was keen on giving a detailed or authoritative response that would pigeonhole them in on a position.  I can’t fault either since, as Obama noted early, they’re still waiting on the specific language to emerge from the proposal.  That having been said, I have one major issue with how they addressed the economy.  Both candidates, cognizant of a financial crisis and aware that some form of bailout will occur, have not been forthright enough in adjusting their fiscal plans to accommodate what is known:  that a massive expenditure is coming down the pike.

Yeah, I get that the specifics aren’t in yet.  But as I noted earlier, McCain and Obama have to understand that the tax plans and pet projects that each lined out prior to the Wall Street meltdown will have to be adjusted, or scrapped, or otherwise altered to fit our new economic reality.  Pressed on this matter, Obama mentioned clumsily that he’d have to back burner some of his plans, but then laid out a laundry list of spending programs he’d like to implement.  It was not one of his better moments.  McCain handled this only slightly better in that he didn’t answer a question about cutbacks with a wishlist of expenditures.  But his obsession with earmarks is becoming comical, especially given that his running mate has asked for plenty and supported the earmark poster child, the Bridge to Nowhere.  But even if that wasn’t the case, earmarks are a relative pittance of the federal budget — eliminating them looks great as a matter of principle, but does little actual good in the way of spending. 

The bottom line is this:  we are entering a new economic reality as a result of the mortagage crisis.  The next president will not be able to afford the sort of tax relief or tax breaks that they would like to implement, and on top of that will have to make difficult cutbacks in areas that aren’t necessarily politically palatable.  I would appreciate if one or both would start being upfront and honest about that.  I realize I’m a crazy person for suggesting such a thing.

Like I said, you could probably argue that either or neither candidate won.  My feeling is that if McCain didn’t gain any real ground, then in effect he lost a little.  In other words, Obama held serve, and in doing so eliminated any remaining doubts about legitimacy — if he proved anything, it’s that it is ludicrous to suggest he didn’t belong on that stage with McCain.

McCain and Obama: Ignore pretty much everything to this point

Herein lies the trouble of blogging about personal finance during a financial crisis:  information can degrade in a blink.  If the Wall Street meltdown tells us anything about the next administration, it’s that there is no way that either candidates’ tax plans can be implemented as proposed. 

I’m not exactly going out on a limb here; rarely does the tax policy of a president mirror the tax policy of the candidate.  But in light of the massive bailouts underway, I just can’t imagine us being the recipient of any of the major tax goodies Obama and McCain have been proposing to toss our way.  For McCain, the financial crunch likely means it will be impossible to extend the Bush tax cuts.  For Obama, his middle-class tax break goes away.  Depending on how it plays out in the halls of Congress next year, we the people are facing either rising taxes or scorching debt.  Perhaps a combiniation of the two.

Of course, one can’t campaign under that premise, which means that both candidates get to spend the next five weeks pitching DOA tax plans during an economic crisis.  As voters, we have the unenviable task of wading through an economic crisis with the understanding that we won’t get any real-world answers or information until after the election.  So that’s fun.

Obama and McCain: Overall Economic Plans

Since I hit upon the tax plans yesterday, and both Obama and McCain rolled out new ads today specific to the economy, here are links to the candidates’ respective economic plans:

The Obama plan here.  And in the red corner, the McCain plan.

I’ll dig into these more in the coming weeks and compare and contrast.  On first walkthrough, the Obama plan appears to be a little more substantive in terms of specifics.  Just a first glance, so I’ll retract that it need be.

Also, and this I am sure of from first glance — the McCain website is a train wreck.  Ugly, clunky, and full of typos.  The typos are particularly irritating.  I’m sure my blog is full of typos, but my blog isn’t running for president.