In the news last week were more stories about the problems in subprime...and housing generally. The International Herald Tribune described a typical situation:
“A Minnesota couple had a mortgage on a modest house. The interest came to US$11,400 per year on the US$205,000 loan. But now, the rate has been adjusted upwards – to 9.3%. This puts the annual interest charge up to US$19,000. The couple didn’t have an extra US$7,600 to put into their mortgage payments, so they tried to refinance. Alas, 2007 is not 2005. Lenders are not standing in line to offer them money. What’s worse, they find they can’t refinance at all without paying thousands in pre-payment penalties. These penalties are another source of outrage for the politicians, who’ve vowed to prohibit them.”
“My guess is that this real estate problem is going to change the whole mentality of the baby-boomers,” said a friend yesterday. “We’re going to go back to our roots in the 1960s and focus on happiness, rather than money. What I mean is that we’re going to give up on money as a source of happiness...either because we finally got money and then discovered that it didn’t make us happy...or, probably for most people, the wealth we thought we had – in our houses – is going to disappear.
“We’re too old to build wealth by saving it...or by earning it. So, we’re going to focus on being happy the way we did in the ’60s, when we didn’t have any money. We’re going to remember how happy we were back then, with nothing. There’s going to be a huge new interest in the spiritual side of things...in music...in living inexpensively...and maybe even in drugs.”
For the last 30 years, the baby boomers have been up-scaling their lives. If our friend is right, the next years will be spent down-scaling...getting rid of things...simplifying...and focusing on things not directly related to money.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Bill on 28 October 2007:
I enjoy your articles. Very informative and realistic. This artcile is especially relevant especially since inflation is high (as in very) and the "core CPI" is not...it is unrealisitc. What this means is baby boomers on fixed incomes will have trouble living, let alone savings. Unfortunately, not many authors address the subject and AARP has been essentially worthless in helping fixed income folks. Please keep up your great articles!