It seems inevitable that if interest rates continue to rise, as conceivably they could, the confidence factors of many American consumers will be squeezed.
But nobody, including the chairman of the Federal Reserve, can be sure.So far that confidence has been almost immune to actual, potential and threatened events, including the great stock market crash of 1987, which created a shiver so tiny that it had dissipated by Christmas.
Since then, consumers have gone on their merry way, spending and borrowing with confidence while professional economists regularly talk about such things as inflation, recession, rising interest rates and other ogres.
None of these has daunted the great American consumer, suggesting that it might take something of an economic earthquake to slow the propensity to spend. In December, consumer debt rose $5.4 billion to a total of $667.3 billion.
That increase, 9.9 percent on an annual basis, wasn't a fluke. In November, consumer credit rose at an 8.5 percent annual rate. In October the rate was 7.2 percent. Borrowing for cars and retail items rose. Credit card debt rose too.
The increases are explained variously by analysts as a natural byproduct of job security, rising personal income, faith in the new administration, belief that prices are "right," the absence of runaway inflation and the like.
All these and more are the ingredients of confidence, and that confidence, at least superficially, seems ready to penetrate all obstacles, including a 10-month effort by the Federal Reserve to restrain economic growth.
Will it, though? The test of that confidence is now, when higher taxes and high interest rates combined might toss a wet towel of reality at some borrowers.
Credit-card interest rates, for example, already are high, historically and in comparison to most other rates. Many issuers of cards charge close to 20 percent. Some charge even more, not counting annual fees.
Should there be further increases, mainly from the Fed's insistence that interest rates are an effective and necessary restraint on the economy, levels will be reached that once were considered intolerable.
Making them worse still will be higher taxes. True, President Bush seems determined to avoid any new taxes this year, but an old one continues to add pressure. Whereas 40 percent of installment debt was tax-deductible last year, only 20 percent will have that status in 1989. Debt is increasingly costly.
A psychological factor enters the picture: The realization of how costly that debt will be might not be impressed upon people for another year. That is, the true impact might not come until borrowers complete their 1989 taxes.
It is a seemingly deadly combination until you reflect that nothing over the past year, including the Internal Revenue Service and the Federal Reserve, has been able to penetrate the consumer's armor and shake up that confidence.
Early returns suggest strong spending will continue in 1989. Aided by balmy weather, major retailers reported January sales gains of 6 percent to 10 percent, and a large part of such sales historically are on a credit basis.