Credit Basics
Consumer spending — Price is high
Easy credit has helped create a cycle of debt, and times will get tougher if we are break free
The Capital-Journal Editorial Board
It was a trap in the waiting. Americans kept sending and spending.
Now, it appears it's time to pay up.
"The desire of consumers to want, want, want, spend, spend, spend — it's the fabric of our nation," said Howard Dvorkin, founder of Consolidated Credit Counseling Services in Fort Lauderdale, Fla., which has advised more than 5 million people in debt. "But you always have to pay the piper, and that can be a very painful process."
It's a vicious cycle. If Americans don't spend, the economy sags. If they do spend, quite often they take on more debt.
Sometimes, it's too much to handle — and that appears to be the case now.
Headed into 2008, Americans are falling behind on their credit card payments at an alarming rate.
The value of credit card accounts at least 30 days late jumped a whopping 26 percent to $17.3 billion in October from a year earlier.
At the same time, defaults rose 18 percent to almost $961 million in October.
And there is no indication we've reached bottom yet.
No doubt, the wicked impact of the subprime mortgage crisis is getting deeper.
"Debt eventually leaks into other areas whether it starts with the mortgage and goes to the credit card or vice versa," said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. "We're starting to see leaks now."
The U.S. government has stepped in to a limited degree with the "teaser freezer" agreement, which freezes low introductory rates for five years on some subprime mortgages. But unless the feds take further steps, financial experts expect 3.5 million home loans will go into default over the next 30 months.
Economists now are contemplating what could be the worst downturn for the U.S. economy in 25 years, when America plummeted into the steep economic recession of 1981-82.
We in the Midwest can take some comfort in knowing that we traditionally are more conservative in our spending patterns, and that property values haven't escalated in the past few years to the levels of high-dollar coastal locales.
Still, we will feel the impact here, even if it is muted.
Too much of a good thing is always dangerous.
Americans, on a rocket of a real estate ride for much of the past 25 years, must now survive the adjustment of a downturn.
And the spending spree — well, sometimes it's not a bad idea to slow 'er down from time to time when you're at the cash register.
Call it old-fashioned conservativism. But it can spare one much pain when it's time to pay the piper.
