Can the US consumer live without equity extraction?

American consumers have been behaving like children, clamouring for newer cars and bigger houses and extracting equity from their homes in order to pay for them. But what happens when the home equity cookie jar is empty?

My first experience with a mob of American children was a job I had working in my hometown park while in high school. At one summer party, my job was to hand out candy to the children. I grew impatient handing it out piece by piece so to speed up the process, I started throwing it by the handfuls to the kids. I was shocked as their response was immediate and totally unexpected. I was soon chased through the park by a hungry mob of excited children who wanted their candy, and they wanted it now. This fond memory reminds me of the American consumer today because they continue to behave very much like those excited children.

Every day we are bombarded with advertisements and ads speaking to our inner child. We, as consumers, are so conditioned to buy that fancier car or bigger house because the auto dealerships and bankers are offering financing terms that have made it so easy. The loans being offered today are so flexible and, at first glance, appear affordable because they're interest-free, 40-year, no money down/no payment due, piggyback, adjustable-rate, etc. The former Federal Reserve Chairman even encouraged "really sophisticated" consumers to take out ARM mortgages and extract equity from their homes. As a result, consumers have been lured into debt big time with these loans.

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