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What is Driving Americans to Plunge Themselves Deeper Into Debt?

michigan football helmet.jpgOne big reason Americans are so in debt; we love to spend money. Americans have an insatiable appetite for spending, an unquenchable thirst to plunge themselves into a spending spree with gusto. Well, that may be a bit strong, but according to Professor Claes Fornell from the University of Michigan, that is the case. His research predicts even greater spending ahead for the American consumer. Just why does he make such predictions?  Where does he get the information that leads him to conclude that we’ll continue to spend money even in the face of poor economic news? (I bet he may want to revise that prediction after the day the NYSE had today) 

The good doctor uses consumer satisfaction surveys that show American consumers are generally very satisfied with their purchases of goods and services. Well, that’s all fine and dandy, but how are people supposed to continue their spending spree if the economy slows down and they have less disposable income? It’s sort of a chicken and egg predicament in a way. Consumer spending drives the economy, which continues to grow, providing more jobs, more income for consumers to spend, and so on. Somewhere there has to be a base upon which to rest this house of cards.

If, as seemed to be the case today, it only takes a few words from the esteemed Mr. Greenspan (Chinese markets notwithstanding) to bring the whole gravy train to a screeching halt, how secure are we anyway?  Are investors and consumers really so worried and unsure of what the future holds they’ll sell like mad on the word of a single economist and a soft housing market? Apparently so. The market, according to many experts, is overdue for a correction, with stock prices outpacing economic reality. Well, consider us corrected, I suppose; unless we can expect more of the same tomorrow.

Professor Fornell expects our love of consumer goods and they elation they bring us to continue fueling the prosperity we’ve been enjoying. He also claims our good feelings toward retailers help to fuel our growing consumer spending. The professor cited retail giant Costco as one of the standouts on the consumer satisfaction chart, with an 81 rating (out of a possible 100). Ironically, this comes only days before Costco changes it’s return policy for consumer electronics products.

I think a look at statistics will shed even more light on the subject. It seems it is the American consumer’s attitude toward debt that is really giving the spending boom a kick in the rear. Americans are definitely not afraid to deficit spend their way to a new plasma TV, Viking stainless steel barbeque, or even a Gauge Mecha 1 BMF watch. If we feel entitled, by God, we better bolster our collection of whatever we want, right this instant. Internet shopping only facilitates the whole thing. By the way, Internet retailers have some of the highest satisfaction indices in the Professors Data, with scoring an 87.

We are even more in debt than ever before. With regard to the aforementioned statistics, American consumer credit grew 4.5% in 2006 to the highest seasonally adjusted level in history, $2.4 Trillion! That’s a lot of Visa cards. Americans financed a record $26 billion worth of motor vehicles at auto finance companies alone. The average term on an auto loan is now about 62 months. We’re going deeper in debt to finance our autos, and taking longer to get out of debt too.

Are we really just plunging ourselves into debt because we like to feel satisfied? That satisfaction overrides the reality of being in debt for many people. Consumer debt has lost it's stigma for many American consumers, and they expect to exist in a state of indebitedness. Many now look at saving with a bit of disdain, a far cry from our views in the not too distant past. Satisfaction with consumer products may be driving our nation’s consumer spending, but ever increasing levels of debt are fueling it. Are we able to stop the debt merry go round without derailing our economy in the process?

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