Debt load leaves U.S. vulnerable on several fronts

NEW YORK — Buy now, pay later: It's been the mantra of American consumers for decades.

The results are obvious in the ballooning balances on credit cards and mortgage loans, and in the mushrooming U.S. trade deficit, which reflects the nation's nearly insatiable appetite for cheap, imported goods.

Low interest rates, especially since the end of the 2001 recession, have fed the debt beast at home, allowing American consumers to accumulate nearly $11 trillion in debt as they buy more homes, more cars, more clothes, more dinners out. At the same time, foreign investment in the United States is helping to keep the dollar strong, which holds down prices on those imports Americans covet.

But what would happen if interest rates suddenly weren't so benign or if foreign governments, corporations and individuals stopped investing so heavily in America? Some analysts fear such actions could trigger doomsday scenarios in which the bills come due and Americans can't pay. The consequences could be devastating for the U.S. economy.

The Associated Press asked several experts to discuss these potential disasters and to offer a rebuttal for those who believe that while the country may be in debt, it's not in danger.

Credit-card crunch

The tool that has made it ever so easy for Americans to buy and buy is the credit card. And buy they have.

Outstanding balances on credit cards have risen to more than $800 billion, or some $7,200 per U.S. household. It's more than double the indebtedness of a decade ago — and it doesn't include an additional $1.3 trillion in debt for cars, appliances and personal loans.

What if interest rates suddenly shot up, say 3 percentage points or 4 percentage points, requiring burdened borrowers to greatly increase the amounts they have to pay each month on their debt?

"It would undermine the housing market and could quickly result in credit problems that would affect the entire (American) financial system," says Mark Zandi, chief economist at Economy.com, a forecasting firm in suburban Philadelphia.

Such an event isn't beyond the realm of possibility if global investors, for instance, shift their money out of the United States or if a terror attack riles financial markets.