Credit Card Debt Path To Recession

Last week while members of Congress lamented the death of the Balanced Budget Amendment, the Consumer Federation of America released a startling report about the nation’s other deficit problem.

Credit card debt, which rose at double-digit rates during the past four years, broke records in 1996. Consumers charged more than $1 trillion. “Revolving” credit card debt, the sum left unpaid and collecting interest, was $400 billion. Credit card delinquencies and personal bankruptcies hit historic highs.

And the banks still are showering the country with unsolicited credit cards. Children get them. College students get (and regret) them. Dead persons get them. God himself, notified by junk mail last week that he’s a finalist for the American Family Publishers Sweepstakes, must be weary of those dinnertime phone calls from the Bank of Southern North Dakota, offering him a pre-approved card. Sorry, big guy, just kidding.

Yet this is, no kidding, a big deal. Consumer spending makes up two-thirds of the nation’s gross domestic product. If federal government now staggers under the weight of interest payments from years of spending beyond its means, what is the future of an economy built on consumers who do the same?

On Wednesday, Federal Reserve Chairman Alan Greenspan issued a widely reported warning about the inflated stock market - and made some little noted remarks about credit card debt. It has increased “sharply” but may be leveling off, he said, “perhaps because some households are becoming debt constrained and, as a result, are curtailing their spending.” Not to worry, though. “Credit card debt,” he added, “has been profitable for those who issue it.”

Spoken like a banker.

The Consumer Federation got a telling response when it urged banks to stop encouraging credit-card consumers to go deeper into debt with more and more cards.

Banks, whose CEOs can be hard-eyed conservatives when it comes to the spending habits of Congress, instantly denounced the federation’s plea for restraint as “anti-consumer.”

Anti-consumer? How is it anti-consumer to discourage families from spending more than they earn?

With cards charging an average of 18 percent interest, plus fees, banks are making too much money to put much of a damper on the nation’s other deficit.

Besides, it is consumers, each one of us, who bear the responsibility. Families that spend within their means can save for college and retirement. If enough families do, there’ll be less reason for concern with another warning, buried in Greenspan’s speech:

“Another recession will doubtless occur someday owing to circumstances that could not be, or at least were not, perceived by policy-makers and financial market participants alike.” Plastic money - and a plastic economy? - is costly when the bill arrives.

, DataTimes The following fields overflowed: CREDIT = John Webster/For the editorial board