Today’s New York Times reports on the growing concern over consumer debt, which has climbed from $54,000 in 1990 to $79,000 last year. Mortgage foreclosures, credit card delinquencies and personal bankruptcies are all at near record levels.
Greenspan’s view is that household balance sheets are “in good shape,” and perhaps stronger than ever, because the value of people’s homes and stock portfolios have risen faster than their debts. He is equally sanguine about the nation’s overall borrowing from foreigners, which has soared to more than $500 billion a year and has contributed to a sharp drop in the value of the dollar. “History suggests that the odds are favorable that current imbalances will be defused with little disruption,” he declared in a speech two weeks ago.
But a growing number of experts are worried that Mr. Greenspan is too casual. Though most economists agree that American’s indebtedness is not a problem at the moment, many worry that the country has become too dependent on extraordinarily low interest rates that will inevitably creep higher in years to come.
“The fear I have is that the world is leveraged on low-interest borrowing,” said Allen Sinai, chief executive of Decision Economics, an economic forecasting firm. “It’s like a drug, and you get hooked on it.”
“The day of reckoning is not now, but maybe five years from now,” said James W. Paulsen, chief investment strategist at Wells Capital Management. “To go down Greenspan’s route is like saying there is a free lunch. The fallacy is that net worth has gone up because debt went up. And that doesn’t give me a good feeling.”