American consumers' debt binge during the 1980s increases the likelihood the looming recession will be long and deep, a liberal policy research group said Thursday. "If we do experience a recession, its impact will be much more severe than if consumer debt were at a lower level," said University of California-Riverside economics professor Robert Pollin.
Pollin's study, "Deeper in Debt: The Changing Financial Condition of U.S. Households," said Americans' debt, compared with their disposable income, was at a post-World War II high of 93.9 percent in 1988. In the mid-1970s, the ratio hovered about 75 percent.
The debt overhang will cause consumers to cut back spending even more sharply than they would otherwise in an economic downturn, deepening any recession, said the report, prepared for the Economic Policy Institute, a liberal think tank financed partly by labor unions.
Any added pressure on consumers is particularly significant because their spending amounts to about two-thirds of the nation's economic activity as measured by the gross national product.