Can unpaid consumer debt speed recovery? Don't bank on it


You might think making the case that unpaid consumer debt can speed the recovery is absurd, but The Wall Street Journalactually is doing just that in Monday's paper. The argument keys off Federal Reserve figures that put total household debt, including mortgage debt, at about $13.7 trillion, or 125 percent of annual after-tax income. The Journal's reasoning goes like this: As people deleverage, even if it's through bankruptcy and foreclosure, they'll move more quickly back to a more sustainable debt level of 100 percent. At that point, consumers would then be able to help with the recovery because they'd be in a position to spend again.

While I can understand the Journal's numbers, its story doesn't fully examine the actual impact on consumers (though it does say there's no guarantee spending will take off under this scenario).