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Last Updated: Monday, 23 February, 2004, 17:49 GMT
Greenspan calm on consumer debt
Alan Greenspan is confident of continuing economic recovery
The huge debt run up by US consumers in recent years is not a threat as long as interest rates stay low, Federal Reserve chairman Alan Greenspan says.

The Fed chief, himself the ultimate arbiter of US interest rates, told a conference of credit unions that the household sector was "in good shape".

The massive popularity of remortgaging in the US has helped people sort out their personal finances, he said.

The amount of income US consumers set aside to pay debts was stable at 13%.

Swelling load

Mr Greenspan's comments come as the indebtedness of US households tops 9 trillion dollars.

Of that figure, 6.7 trillion is in mortgages - an area which has swollen in recent years as Americans have taken advantage of rock-bottom interest rates to remortgage their homes so as to raise extra cash.

In the third quarter of 2003, household debt expanded at an annual rate of 10%, with a 3.9% expansion of consumer credit in December 2003 alone.

Many observers have been concerned that swelling debt has underwritten the consumer boom on which the US economy has come to depend.

Growing debt levels, they fear, could spell an end to consumer spending growth - and indeed, recent figures have seen consumers' outlays come off the boil.


But Mr Greenspan pointed to the 1% base interest rate - unprecedented in almost half a century - as the key to making debt more stable than it looked.

The remortgaging craze meant some consumers were paying off more expensive debt elsewhere - or avoiding taking it out in the first place.

Most US mortgages are at fixed rates, so rising interest rates in the future may not have much of an effect on repayments.

The overall debt service ratio - the proportion of income used to pay debts - had been 13% for two years, Mr Greenspan said.

And even the financial obligations ratio, which includes car lease costs and household insurance, had stayed just above 18% for the same period.

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