Debt Is Imploding And That May Mean A Longer Slump

The most important leading indicator for the economy, insists economic consultant Robert H. Parks, is real private domestic borrowing--that is, borrowing by consumers, businesses, and state and local governments. He points out that such credit fell in real terms in the fourth quarter for the first time since the Great Depression and appears to be still declining--indicating "no letup in the recession."

If there is a positive side to this scenario, it may lie in the effect on financial markets. Economist Edward S. Hyman of International Strategy & Investment Group Inc. observes that "credit demand on the private side of the economy has ebbed so much that total U. S. debt growth over the past year has actually fallen below the growth in savings." With net savings now positive, Hyman thinks that interest rates are likely to decline and stock prices will edge up "as additional Fed easing more than offsets earnings disappointments."