Is America too deep in debt?

In an article in CNN/Money, dated April 4, 2004, Writer Mark Gongloff addressed this issue.

The Federal Reserve said outstanding credit, excluding mortgage debt, grew by just $4.1 billion in February to $2.02 trillion, after growing by a revised $15.8 billion in January. Economists, on average, expected debt to grow by $7.7 billion, according to Briefing.com.

With personal bankruptcies hitting a record high in 2003 and credit-card delinquencies hitting a record high in the fourth quarter of 2003, now might seem like a good time for consumers to be easing up on the debt.

But economists haven't been worried. Fed Chairman Alan Greenspan waved aside debt concerns in a speech in late February, saying household net worth and incomes were rising to keep up with rising debt and that low interest rates had helped keep the ratio of debt to income stable in the past couple of years.

"Overall, the household sector seems to be in good shape," Greenspan said then, and most other economists agree, for now.

In fact, consumers having so much credit at their fingertips is a good thing for the broader economy right now, because it props up consumer spending, which makes up more than two-thirds of all U. S. economic activity.

But what happens when the tab comes in?

"When the economy goes back down again, years down the road, will consumer credit be a major problem, like it was in the 1990-91 recession? " asked Bank One Chief Economist Diane Swonk. "Yes, it could come back to haunt us."

Among the first to suffer will likely be those consumers who use credit cards to pay living expenses, according to Allen Grommet, senior economist for the Cambridge Consumer Credit Index, a monthly survey of consumer credit demand.

"Of those planning to use additional credit in March, almost half were using it because they have to meet their everyday needs," Grommet said. "That, to me, says there is a large group of people right on the edge, having trouble.and when interest rates go up, that will really pinch them."