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American Morning

America and Debt

Aired May 15, 2001 - 10:03   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: It was the best of times. It was also the worst of times for many Americans. Those words of Charles Dickens resonate as freshly as today's headlines. For many, though, a booming economy had a sinister seduction -- too much credit and too much debt now.

CNN's Brooks Jackson takes a look at that.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN CORRESPONDENT (voice-over): Robert Gotsch is updating his resume, looking for work.

ROBERT GOTSCH: This is my life. Right now I'm laid off.

JACKSON: He lost a $40,000 a year job this month when business softened at his employer, a victim of the weak economy. And he, along with wife Lynna, also are suffering from large personal debts. They are casualties of credit.

LYNNA GOTSCH: It has, we have sold everything we can imagine -- computers, my roller blades. We've gone to flea markets, sold clothes, done without cable, cut down, commuted together to save on gas and car expenses and are living with family.

JACKSON: With no house of their own, they live with her grandmother in rural Baldwin, Georgia. Their debts once totaled nearly $120,000 from old student loans, car loans, bad stock trades on margin, but mainly credit cards with interest rates as high as 21 percent. With sacrifice, the debts are down to $73,000 now, but still a huge handicap, especially now that Lynna is the only one employed.

(on camera): It's a national problem, Americans borrowing more and more to support spending. That spending has kept the economy growing, but the debts make more and more families vulnerable when times turn bad, a danger to the whole economy.

(voice-over): Americans who once saved an average of eight percent of their take home pay only a few years ago now spend about one percent more than they earn, a negative savings rate. Payments on personal debt for such things as credit cards and student loans used to consume less than six percent of after tax income. Now, it's nearly eight percent, highest in more than a decade and rising. (on camera): It's not yet a crisis. Most families are still financially solid. But economists say the debt burden does threaten to turn the current financial slowdown into a full blown recession.

MARTIN REGALIA, U.S. CHAMBER OF COMMERCE: Kind of like a room full of gasoline. As long as no one throws a match in, everything goes along just fine. But if that match or spark shows up, then you have an explosion.

JACKSON (voice-over): Meanwhile, Robert believes he'll find something soon. And for others in their position, Lynna has this advice.

L. GOTSCH: Just hold on. There's hope. God's promised to provide and he will provide. And stay away from borrowing any more money.

JACKSON: Brooks Jackson, CNN, Washington.

(END VIDEOTAPE)

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