Is our river of red ink about to dry up?

By Peter S. Goodman

For more than half a century, Americans have proved staggeringly resourceful at finding new ways to spend money.

In the 1950s and '60s, as credit cards grew in popularity, many began dining out when the mood struck or buying new television sets on time rather than waiting for payday. By the 1980s, millions of Americans were entrusting their savings to the booming stock market, using the winnings to spend in excess of their income. In recent years, millions more exuberantly borrowed against the value of their homes.

But now, the freewheeling days of credit and risk might have run their course - at least for a while and perhaps much longer - as a period of involuntary thrift unfolds in many households. With jobs shrinking, housing prices plummeting and debt levels swelling, the same nation that pioneered the no-money-down mortgage suddenly confronts an unfamiliar imperative: More Americans must live within their means.

"We don't use our credit cards anymore," said Lisa Merhaut, a professional at a telecommunications company who lives in Leesburg and whose family last year ran up credit card debt they could not handle.

Today, Merhaut, 44, manages her money how her father did: Despite a household income reaching six figures, she uses cash for every purchase. "What we have is what we have," Merhaut said. "We have to rely on the money that we're bringing in."

The shift under way feels to some analysts like a cultural inflection point, one with huge implications for an economy driven overwhelmingly by consumer spending.

While some experts question whether most Americans, particularly baby boomers, ever will give up their buy-now/pay-later way of life, the unraveling of the real estate market appears to have left millions of families with little choice, yanking fresh credit from their grasp.

"The long collapse in the United States savings rate is over," said Ethan S. Harris, chief U.S. economist for Lehman Brothers. "People are going to start saving the old-fashioned way, rather than letting the stock market and rising homes values do it for them."

In 1984, Americans still were saving more than one-tenth of their income, according to government data. A decade later, the rate was down by half. Now, the savings rate is slightly negative, suggesting that, on average, Americans have been spending more than their disposable income.

Though the savings rate does not account for the increased value of stock and property, or the gains on retirement accounts, many economists still view it as the most useful gauge of the degree to which Americans are making provisions for the future.

For the 34 million households who took money out of their homes over the past four years by refinancing or borrowing against their equity - roughly one-third of the nation - the savings rate was running at a negative 13 percent in the middle of 2006, meaning they were borrowing heavily against their assets to finance their day-to-day lives, according to Moody's Economy.com.

By late last year, the savings rate for this group had improved but just to negative 7 percent and mostly because tightened standards made loans harder to get.

"For them, that game is over," said Mark Zandi, chief economist at Economy.com. "They have been spending well beyond their incomes, and now they are seeing the limits of credit."

Many times before, of course, Americans have found innovative ways to finance spending, even when austerity seemed unavoidable. It could happen again.

The "Me Decade" was declared dead in the recession of the early 1980s, only to yield to the "Age of Greed" and later the Internet boom of the 1990s. And over the longer term, the economy should keep growing at a pace that reflects steadily improving productivity and population gains.

But for the first time in decades, credit is especially tight as the bursting of the housing bubble has spread misery across the financial system. In homes now saturated with debt, conspicuous consumption and creative financing have come to seem malignant, a sign of excess not unlike that of a suntan in an age of skin cancer.

The return to reality is on vivid display at the nation's shopping centers, where consumers used to trading up to higher-price stores are now trading down to discounters. Wal-Mart Stores and T.J. Maxx and Marshalls, both owned by the TJX Cos., are thriving again. Business has slowed significantly at Coach, Tiffany and Williams-Sonoma.

For decades, consumer envy has been a primary engine of economic growth. Debt-willing consumers hungering for the "latest-generation this" and the "fastest that" kept factories busy from Michigan to Malaysia.

From 1980 to 2007, consumer spending swelled from 63 percent of the economy to more than 70 percent, according to Moody's Economy.com, while the share of after-tax income absorbed by household debt increased from 11 percent to more than 14 percent.

Through the 1990s, many came to see their technology shares as a license to live an extravagant life. Budgeting seemed an anachronism reserved for troglodytes who didn't "get it."

Such notions were widely encouraged. In television ads for the discount brokerage firm Ameritrade, a spiky-haired hipster ridiculed middle-aged professionals for settling for conventional returns.

Even after the "stock market as money machine" narrative proved bogus, extra spending continued. The Federal Reserve cut interest rates to near-record lows, banks marketed mortgages with exotically lenient terms and another fable of wealth-creation took hold: the notion that housing prices could go up forever.

The come-ons for stocks were replaced by a new crop of advertisements. A house was no longer a mere place to live; it was a checkbook that never required a deposit. Between 2004 and 2006, Americans pulled more than $800 billion a year from their homes via sales, cash-out mortgages and home equity loans.

"People have come to view credit as savings," said Michelle Jones, a vice president at the Consumer Credit Counseling Service of Greater Atlanta.

Some Americans have amassed so much wealth that they can spend enough to fuel much of the economy. The top fifth of American earners generates half of all consumer spending, noted Dean Maki, chief U.S. economist at Barclays Capital.

As for the rest of the population, some argue that credit is such an intrinsic part of modern life that Americans will soon bounce back for more.

"A river of red ink runs through the history of the American pocketbook," said Lendol Calder, author of "Financing the American Dream: A Cultural History of Consumer Credit."

"Partly because of desire, partly because of optimism, partly because lenders have been free to invent useful borrowing tools that minimized shame and bother," he added, "I think it will take a great catastrophe, greater than the Great Depression, to wean Americans from their reliance on consumer credit."

But as many households land in financial peril, the American view of risk is being reshaped. Ameritrade recently ran ads promoting "the safety and stability" of its business, offering assurances that "it doesn't own subprime securities, period."

Credit counselors are now swamped by calls not just from people of modest means who stumbled into trouble through job loss or illness but from professionals earning six-figure incomes, their access to finance warping their distinction between necessity and desire.

"The longer someone has lived on a high income, the harder it is for someone to cut back," said Manuel Navarro of Money Management International in San Diego. "I ask them, 'Do you really need to have a 60-inch flat-screen TV hanging on your wall?' " By Peter S. Goodman

The New York Times

For more than half a century, Americans have proved staggeringly resourceful at finding new ways to spend money.

In the 1950s and '60s, as credit cards grew in popularity, many began dining out when the mood struck or buying new television sets on time rather than waiting for payday. By the 1980s, millions of Americans were entrusting their savings to the booming stock market, using the winnings to spend in excess of their income. In recent years, millions more exuberantly borrowed against the value of their homes.

But now, the freewheeling days of credit and risk might have run their course - at least for a while and perhaps much longer - as a period of involuntary thrift unfolds in many households. With jobs shrinking, housing prices plummeting and debt levels swelling, the same nation that pioneered the no-money-down mortgage suddenly confronts an unfamiliar imperative: More Americans must live within their means.

"We don't use our credit cards anymore," said Lisa Merhaut, a professional at a telecommunications company who lives in Leesburg and whose family last year ran up credit card debt they could not handle.

Today, Merhaut, 44, manages her money how her father did: Despite a household income reaching six figures, she uses cash for every purchase. "What we have is what we have," Merhaut said. "We have to rely on the money that we're bringing in."

The shift under way feels to some analysts like a cultural inflection point, one with huge implications for an economy driven overwhelmingly by consumer spending.

While some experts question whether most Americans, particularly baby boomers, ever will give up their buy-now/pay-later way of life, the unraveling of the real estate market appears to have left millions of families with little choice, yanking fresh credit from their grasp.

"The long collapse in the United States savings rate is over," said Ethan S. Harris, chief U.S. economist for Lehman Brothers. "People are going to start saving the old-fashioned way, rather than letting the stock market and rising homes values do it for them."

In 1984, Americans still were saving more than one-tenth of their income, according to government data. A decade later, the rate was down by half. Now, the savings rate is slightly negative, suggesting that, on average, Americans have been spending more than their disposable income.

Though the savings rate does not account for the increased value of stock and property, or the gains on retirement accounts, many economists still view it as the most useful gauge of the degree to which Americans are making provisions for the future.

For the 34 million households who took money out of their homes over the past four years by refinancing or borrowing against their equity - roughly one-third of the nation - the savings rate was running at a negative 13 percent in the middle of 2006, meaning they were borrowing heavily against their assets to finance their day-to-day lives, according to Moody's Economy.com.

By late last year, the savings rate for this group had improved but just to negative 7 percent and mostly because tightened standards made loans harder to get.

"For them, that game is over," said Mark Zandi, chief economist at Economy.com. "They have been spending well beyond their incomes, and now they are seeing the limits of credit."

Many times before, of course, Americans have found innovative ways to finance spending, even when austerity seemed unavoidable. It could happen again.

The "Me Decade" was declared dead in the recession of the early 1980s, only to yield to the "Age of Greed" and later the Internet boom of the 1990s. And over the longer term, the economy should keep growing at a pace that reflects steadily improving productivity and population gains.

But for the first time in decades, credit is especially tight as the bursting of the housing bubble has spread misery across the financial system. In homes now saturated with debt, conspicuous consumption and creative financing have come to seem malignant, a sign of excess not unlike that of a suntan in an age of skin cancer.

The return to reality is on vivid display at the nation's shopping centers, where consumers used to trading up to higher-price stores are now trading down to discounters. Wal-Mart Stores and T.J. Maxx and Marshalls, both owned by the TJX Cos., are thriving again. Business has slowed significantly at Coach, Tiffany and Williams-Sonoma.

For decades, consumer envy has been a primary engine of economic growth. Debt-willing consumers hungering for the "latest-generation this" and the "fastest that" kept factories busy from Michigan to Malaysia.

From 1980 to 2007, consumer spending swelled from 63 percent of the economy to more than 70 percent, according to Moody's Economy.com, while the share of after-tax income absorbed by household debt increased from 11 percent to more than 14 percent.

Through the 1990s, many came to see their technology shares as a license to live an extravagant life. Budgeting seemed an anachronism reserved for troglodytes who didn't "get it."

Such notions were widely encouraged. In television ads for the discount brokerage firm Ameritrade, a spiky-haired hipster ridiculed middle-aged professionals for settling for conventional returns.

Even after the "stock market as money machine" narrative proved bogus, extra spending continued. The Federal Reserve cut interest rates to near-record lows, banks marketed mortgages with exotically lenient terms and another fable of wealth-creation took hold: the notion that housing prices could go up forever.

The come-ons for stocks were replaced by a new crop of advertisements. A house was no longer a mere place to live; it was a checkbook that never required a deposit. Between 2004 and 2006, Americans pulled more than $800 billion a year from their homes via sales, cash-out mortgages and home equity loans.

"People have come to view credit as savings," said Michelle Jones, a vice president at the Consumer Credit Counseling Service of Greater Atlanta.

Some Americans have amassed so much wealth that they can spend enough to fuel much of the economy. The top fifth of American earners generates half of all consumer spending, noted Dean Maki, chief U.S. economist at Barclays Capital.

As for the rest of the population, some argue that credit is such an intrinsic part of modern life that Americans will soon bounce back for more.

"A river of red ink runs through the history of the American pocketbook," said Lendol Calder, author of "Financing the American Dream: A Cultural History of Consumer Credit."

"Partly because of desire, partly because of optimism, partly because lenders have been free to invent useful borrowing tools that minimized shame and bother," he added, "I think it will take a great catastrophe, greater than the Great Depression, to wean Americans from their reliance on consumer credit."

But as many households land in financial peril, the American view of risk is being reshaped. Ameritrade recently ran ads promoting "the safety and stability" of its business, offering assurances that "it doesn't own subprime securities, period."

Credit counselors are now swamped by calls not just from people of modest means who stumbled into trouble through job loss or illness but from professionals earning six-figure incomes, their access to finance warping their distinction between necessity and desire.

"The longer someone has lived on a high income, the harder it is for someone to cut back," said Manuel Navarro of Money Management International in San Diego. "I ask them, 'Do you really need to have a 60-inch flat-screen TV hanging on your wall?' "