« back to Today's Commentary

Bankruptcy Avalanche Will Slam Economy
-- October 9, 2002

Debt is becoming harder and harder for many Americans to manage. Record numbers have filed for bankruptcy -- bankruptcies reached 400,686 in the second quarter of 2002, the single highest quarter in history. And with huge stock market losses mounting, more job losses each week, and debt already piled up to the rafters, we expect bankruptcies to continue soaring in the quarters ahead.

Until now, Americans have been piling on the debt, but they seem to be reaching their limit. In September, consumer credit increased by $4.2 billion. That's still sizable, but a sharp decrease from $12.5 billion in August, $10.1 billion in July, and $9.3 billion in June. Consumers have a total $1.73 trillion in credit outstanding! Now, many have come to the point where they will need to rein in spending BIG TIME, or consider filing for bankruptcy.

Either way spells disaster for the economy. Slow consumer spending will send the economy into an even deeper slump than it is already in. But ballooning bankruptcies could put the entire banking and credit infrastructure at risk. And that result is even worse than recession.

related article: Debt Woes Don't Discriminate