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Personal Debt Poses Danger

Click to see original imageWe talk a lot these days about burgeoning govemment spending and the soaring public debt and their effect in fueling inflation. But individual Americans might well look to their own record in these departments. Whether they’re imitating government example or just doing what comes naturally, .many consumers are spending beyond income, contributing to a mounting consumer debt. Observed the Cleveland s Plain Dealer recently: ”ln place of Ben Franklin’s ‘penny saved is a penny earned,’ ‘ Americans have a new motto: ‘Buy, buy, borrow, borrow. That will make you rich tomorrow? What practitioners of this brand of economics may fail to realize is that unrestrained credit buying – neglecting savings and going further into debt makes them partners with govemment in keeping inflation going. Figures reported by the Commerce Department tbe other day weren’t too hopeful in the incomesavings column. Personal income in January, the department said, rose 0.6 percent to an annual rate of $2.036 trillion for the smallest increase since last spring. At the same time, the personal savings rate continued to fall to historic lows as inflationplagued consumers dipped into their savings accoimts to maintain living standards. V , Personal savings declined to 3.2 percent of disposable income in December, the latest month in which statistics were available, the Commerce Deaartment said. This is the owest since the govemment began keeping such records in 1959. The January personal income gain was considerably below December’s 1 percent boost and the 1.2 percent rise of November. The increase would have been even less except for some special factors that occurred last month and added $4.1 billion to the income total, including the minimum wage boost from $2.90 to $3.10 an hour and govemrnent payments of special energy allowances to poor Americans. government payments of special energy allowances to poor Americans. While savings were declinitrgg, the personal debt to was rising. This debt, including mortgages, was $430 billion in 1970. Late last year it had nearly tripled to $1.2 trillion. Consumer credit doubled in less than five years. Now the average family spends 23 percent of its diaposable ( income to pay off ebt. , Consumer credit has been a key to convenience for consumers and a good market for industry and merchandising. But there are signs the credit card society is heading for trouble. For example, rising personal bankruptcies. There were 8,500 of these in 1946. By the early 1960s, the number had surpassed 100,000. Nearly 225,000 are forecast for this fiscal year. Apparently some people have difficulty keeping their feet on the economic ground in the dream world of easy credit, running up unmanageable debts and using one credit card to pay off debts from another. Rationalizing economic realities is easy once the consumer gets under the s ell. Why wait to buy wllien the product will cost 13 percent more next year, some argue. And, why a savings account when interest rates on the money lag behind the inflation level? lt’s a vicious circle; inflation spurs unwarranted buying and this spurs higher consumer debts. It’s time to recognize that we spend more than we earn – especially without an adequate sav1 s ro m – we’re in tnrguble. gvansumers as well as government might well ask themselves what they’d do in a grave ( emergency without a sur, plus. As a nation we need to be more surplusoriented and less prone to rationalize deficits.