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Greenspan upbeat despite mounting consumer debt

WASHINGTON -- American households' finances are generally in good shape even though consumers have built mountains of debt and bankruptcy filings have surged, Federal Reserve Bank chairman Alan Greenspan said yesterday.

Decades of low interest rates and extra cash from refinancing have given people flexibility to better manage their debt, the Fed chief said in a speech to a credit union conference.

Consumer debt hit a record $2 trillion in December, according to the Federal Reserve's most recent figures. That debt includes credit cards and car loans, but not mortgages. More than 1.6 million people filed for personal bankruptcy in fiscal year 2003. Continuing the record-setting pace of recent years, personal bankruptcies rose 7.8 percent in the 12 months ended Sept. 30, according to the Administrative Office of the US Courts.

While elevated bankruptcy rates in the past several years are troubling because they highlight the difficulties some households experience during economic slowdowns, Greenspan said that "bankruptcy rates are not a reliable measure of the overall health of the household sector because they do not tend to forecast general economic conditions and they can be significantly influenced over time by changes in laws and lender practices."

Greenspan noted that delinquency rates on credit card payments have been falling during the past year even as consumers' credit card debt has grown. The rise in credit card debt in the latter half of the 1990s, he said, is mirrored by a fall in unsecured personal loans. That suggests homeowners have shifted a variety of payments to credit cards given their wide availability and convenience, he said.

Two gauges the Fed likes to use to assess the extent of American household indebtedness and to get a view of the financial health of the overall sector "rose modestly over the 1990s," Greenspan said. "During the past two years, however, both ratios have been essentially flat."

"Over the past two years, significant increases in the value of real estate assets have, for some households, mitigated stock market losses and supported consumption," Greenspan said.

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