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Expert: High consumer debt to prolong economic recovery

Mar 24, 2012 Mike Garretson

Consumer debt is expected to remain a problem for years to come, enough to convince many analysts that it will prolong the time it takes the economy to recover. Karen Dynan, a former Federal Reserve economist, is one of the experts expressing concerns about such high debt levels and consumers' slow progress in paying it off. Specifically, Dynan believes some 14 percent of Americans would need to cut their debt loads by more than a year's worth of pre-tax income in order to make substantial progress. That would entail heavy reductions in spending - another problem, considering consumer activity accounts for more than two-thirds of the overall economy. "The most indebted households appear to have made fairly limited progress repairing their balance sheets, suggesting that their consumption could be weak for some time to come," Dynan said in a paper obtained by Reuters. "If this deleveraging were accomplished by saving alone, it could mean a fairly drastic cut in consumption for many years." Debt collection agencies have noted an uptick in demand in recent years due to the surge in credit balances, but this has also led to a heightened regulatory pressure from government agencies.