April 9, 2001

Another Day, Another Dollar in Debt

U.S. consumers continue to pile on mountains of debt, even as the economy grinds to a halt and the stock market swings violently. But a closer look at the numbers (-- consumers borrowed $13.5 billion in February) -- tells us that consumers have stopped buying big-ticket items like autos and boats ($2.4 billion). Instead, they're racking up credit card charges to buy the smaller stuff ($11 billion).

That's because Americans have stopped saving. The savings rate is at a record low negative 1.3%. And with the stock market in a freefall (save for a few bounces), they have kissed their investments goodbye, too. As the economy slides into recession and Americans start to lose their jobs, things are going to get even tighter.

Already this year, we have seen massive increases in credit card debt defaults. We won't be surprised to see defaults increase even more over the next year. Consumers have to learn to pare back expenses while they can still afford it. Otherwise, these huge debt loads are going to crush the economy and make this recession much worse.

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