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Archive for Wednesday, October 20, 2004

Fed chair tries to calm concerns about debt, home prices

October 20, 2004

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— The record level of debt being carried by American households and soaring home prices do not appear to represent serious threats to the U.S. economy, Federal Reserve Chairman Alan Greenspan said Tuesday.

Greenspan said that high levels of personal bankruptcies were a concern because they indicated "pockets of distress" among American households. But he said the vast majority of U.S. consumers "appear able to calibrate their borrowing and spending to minimize financial difficulties."

In a speech before America's Community Bankers, the organization that represents smaller banks in the country, Greenspan sought to play down worries about the high debt levels being carried by American households as a percentage of their after-tax incomes and the steep increases in home prices in recent years.

Some economists have expressed concerns that the big rise in home prices could represent a bubble that may deflate just as the stock market bubble did starting in the spring of 2000.

Greenspan, however, said it was unlikely that either the high level of household debt or the big rise in housing prices represented serious threats to the economy because Americans appeared to have sufficient resources to keep meeting their loan payments.

"Short of a significant fall in overall household income or in home prices, debt servicing is unlikely to become destabilizing," Greenspan said.

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