Category: Consumer Debt

The surging markets of recent years created unrealistically high expectations for stock performance, according to U.S. News and World Report columnist Rick Newman, creating an economic climate in which consumers were subject to punishing levels of debt and creating a serious need for credit counseling services.

Newman writes that "our instinct during a market drop is to ask what happened to trigger it. But we might just as well ask whether that 83 percent run-up was warranted in the first place. Surely some of it was. Stocks sank to the lows of last March because investors were terrified of a full-blown depression, which obviously didn’t materialize, thanks to aggressive government intervention."

Newman also points out that, despite the slow resurgence of consumer spending since the recession, incomes have not kept pace with these increases, meaning that more and more U.S. consumers are going into debt in order to afford their purchases.

However, other experts have pointed out that the increase in consumer spending could be a sign of a more general economic recovery, spurring the income growth that is currently missing from financial indicators.

In what is being described as a significant political victory for the Obama administration, the Senate voted to pass an omnibus financial reform bill, but experts are divided over the way in which it will affect consumers looking to consolidate debt.

Senators Russ Feingold and Maria Cantwell, the only two Democrats to vote against the measure, said that it did not go far enough toward protecting the American consumer from predatory and unfair lending practices by the financial industry.

However, many in the financial industry disagreed, saying the Senate bill places unfair restrictions on banks and could limit the options available to consumers searching for debt consolidation loans and other financial instruments.

Beyond its effects on the consumer lending industry, the main thrust of the bill is aimed at limiting the amount of risk that large financial institutions are allowed to take on, with the idea of forestalling any crises similar to the widespread bank failures in 2007 and 2008 that severely damaged the American economy and cost taxpayers billions in bailouts.