Debt Load Makes Americans Vulnerable

August 28, 2005

Sunday August 28, 2005
By Eileen Alt Powell, AP Business Writer

Heavy Debt Load Makes Americans Vulnerable to Rising Rates, Foreign Currency Imbalances

NEW YORK (AP) — Buy now, pay later: It’s been the mantra of American consumers for decades. The results are obvious in the ballooning balances on credit cards and mortgage loans, and in the mushrooming U.S. trade deficit, which reflects the nation’s nearly insatiable appetite for cheap, imported goods.

Low interest rates, especially since the end of the 2001 recession, have fed the debt beast at home, allowing American consumers to accumulate nearly $11 trillion in debt as they buy more homes, more cars, more clothes, more dinners out. At the same time, foreign investment in the United States is helping to keep the dollar strong, which holds down prices on those imports that Americans covet.

But what would happen if interest rates suddenly weren’t so benign, or if foreign governments, corporations and individuals stopped investing so heavily in America? Some analysts fear such actions could trigger doomsday scenarios in which the bills come due and Americans can’t pay, with devastating consequences for the entire economy.

The Associated Press asked some experts to discuss what could burst the debt bubble in three areas that appear most vulnerable, and to offer a rebuttal from the perspective of people who believe that while the country may be in debt, it’s not in danger.

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