reality-based educator

For a couple of years now the American economy has been propped up by cheap money, the Housing Bubble, gobs of consumer spending and a Federal Reserve printing press that's been working overtime to keep currency moving into people's hands.

I have been saying that it's only a matter of time before the whole economic house of cards comes tumbling down. The bill for our Bush Economic spree has got to come due eventually, and frankly, very few people in this country have got the funds to pay it.

Take this article from Newsday as an example:

The consumer heyday finally may be over.

And that could mean big changes ahead.

For the past several years, the U.S. and regional economies have rested on the backs of consumers who kept buying houses, cars, computers and other gadgets, even when their wages weren't keeping up and jobs weren't plentiful.

Now, all of that may change. Interest rates are rising, energy costs continue to pinch budgets and there's more concern than ever over debt levels and the lack of personal savings. More importantly, perhaps, the housing market likely has reached its top -- and 2006 may be the year it softens.

That adds up to a halt in exuberant consumer spending and the potential for far slower economic growth, unless more business spending kicks in. Virtually no one is predicting a recession in 2006 -- but many are predicting an economic slowdown.

"2006 will be a little more dicey," said Martin Cantor, the director of economic development for Sustainable Long Island, an advocacy group. "If you don't consider the consumer tapped out, then I think you're misjudging or being too optimistic about economic growth."

Just ask Annette Dowd. The 51-year-old mother of two from Melville had been feeling pretty good about her financial situation. But as the price of gasoline and heating oil skyrocketed, and her property taxes continued to rise significantly, her family sank deeper and deeper in debt. Now, she and her husband, Michael, have $13,000 in credit card debt plus a home equity line of credit for $60,000, on top of their mortgage.

Now, Dowd is cutting back everywhere she can, even as she recently went back to work part-time to make ends meet. She slashed the family's discretionary spending by 75 percent and avoids even short trips to save gas. Before, she would have a big annual Christmas party that cost as much as $1,000. This year, it was just a small brunch with bagels. Just a couple of years ago, the Dowds considered buying a bigger house; now, she says, they'd never be able to afford the larger mortgage.

2006 is likely to be a year of even more cutbacks, she added.

"I'd like to have my monthly bills come out to be the same as our income," Dowd said. "But instead we go month-to-month and, usually, we're short."

If you looked only at economic data, you'd be surprised by the Dowds' story, since most of 2005's statistics portrayed solid fundamentals and good growth. The reality for local families, however, is quite different. Many area residents say they have never felt the economic expansion take hold, especially because job creation has been weak and wages haven't grown fast enough.

In 2006, the data likely won't be as good and people will still be tightening their belts -- a recipe for a potentially significant slowdown in the economy, experts said. But the biggest story is likely to occur once the predicted shift in the housing market takes hold.

Tell me if I'm wrong, but doesn't it seem kinda over the top to be carrying $13,000 in credit card debt, $60,000 home equity loan debt, and a large outstanding mortgage when you're already in your fifties and nearing retirement age?

Doesn't it seem worriesome for the American economy as a whole that many Baby Boomers are in similar straits to the Dowds or even worse off, carrying massive amounts of credit card debt and large outstanding mortgages?

I mean, what's going to happen when and if people like the Dowds can't make their credit card payments and/or mortgages anymore. Mrs. Dowd already says there's not enough money left over at the end of the month to pay off all of the bills. Won't that situation worsen if energy prices spike again, the job market tightens, or interest rates continue to rise?

Won't it be bad for the American economy if a bunch of Dowds all across the country have their houses foreclosed and get thrown into the new Dickensian bankruptcy system because they overextended when Uncle Alan Greenspan was lowering interest rates and encouraging consumers to spend early and often?

I know the new meme gaining currency is that business is going to pick up the spending slack from the American consumer, but what happens if business, particularly the banking and credit lending industries, start to find profits declining because half of America is up to its eyeballs in debt?

Won't that mean business can't pick up the spending baton from consumers? Won't that mean a slowdown?