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Not So Fast, Guys
-- February 13, 2002
Consumers may be buying now, but they'll regret it later. Zero-percent financing deals, winter clearance sales, and some of the lowest mortgage rates in decades have persuaded consumers to buy, buy, buy.
But here's the problem: Consumers are already in debt up to their eyeballs. Household consumer credit debt outstanding totals over $1.6 trillion. Throw in the balance owed on mortgages, and that total skyrockets to over $7.5 trillion!
It's no wonder that personal bankruptcies are on track to break their previous record. If consumers keep up this purchasing pace, more and more will end up in bankruptcy court. And the financial health of the nation's banks and other lenders could end up suffering as well.
Wall Street shouldn't be celebrating this buying frenzy as a sign that the recession is over. That's because we are between a rock and a hard place. If consumers don't keep spending, the economy will slow even further. But if they do, increasing bankruptcies could send lenders scrambling to remain afloat. Either way, the economic outlook isn't promising.
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