Walter Russell Mead of the American Interest wrote a very interesting two part post called "The Death of the American Dream" (part II, here). It discusses the upheaval that the American economy faces as it migrates to a post-Indsutrial economy in the wake of a massive, multi-generational credit bubble exploding.
Some thoughts on this came through to me:
The credit bubble will lead to a major realignment on the standard of living we are used to in many facets of our lives. Credit at all levels - government, corporate, and individual, has been growing faster than the economy since interest rates peaked in 1982. We have been borrowing against future growth in order to have consumption now. Our overall debt levels are such where we cannot grow our way out of it without either restructuring or massive inflation. This means a major overhaul of what our expectations of "the good life" is.
No longer will it be families of modest incomes driving around in BMWs and Lexues in their 4,000 square foot houses - all financed with artificially low interest rates compliments of the Federal Reserve and Asia. No longer will we have lavish entitlement programs with two plus years of unemployment benefits, lavish defined benefit pension plans and government welfare programs funded by debt.
The American Dream will be to have sufficient savings for a rainy day, levels of debt that are sustainable on one income with a margin of safety, and full contributions to the 401(k). The lucky family will be that whose house is paid off, no debts, and is maxing out their retirement contributions. As a friend of mine once said, his goal was to have his house paid off so that he would not be a slave to his job. As he put it, he could flip burgers if he wanted to and have his basic needs covered - this will be the new goal.
We will start expecting our governments to follow the discipline that we are facing. If those who work hard and play by the rules are keeping afloat, we don't want to see our tax money being pissed away on handouts and favors to politically connected constituents.