American society begins 1986 another year older and deeper in debt, deeper by far than in any previous decade.
"Buy now, pay later," the sellers say, and in the past few years Americans have taken up the offer with less and less restraint.
Americans now owe a total of $664 billion in debt for loans on cars, home improvements, college education, mobile homes, appliances and other items. Although consumers are expected to slow down some this year, the total consumer debt remains more than triple the level a decade ago.
The homes Americans live in now carry $1.4 trillion in debt, thanks in part to a proliferating variety of mortgage loans. The total debt again is nearly three times the level of a decade ago.
At the same time, American business has taken on a huge new load of debt in the past two years -- more than $350 billion.
Here, the merger and takeover boom is at work. Some of the biggest corporations have piled on the debt high to wage or ward off takeovers. Many more are using debt to buy back stock from shareholders to boost prices of their remaining shares on the market, leaving them less vulnerable to raiders.
Thus, this year will mark the third consecutive year in which corporations have raised as much, or almost as much debt to finance mergers or buy back their own stock as they have to invest in new equipment, facilities or financial assets, according to Salomon Brothers Inc.
Then there is the federal government -- the Reagan administration and the Congress -- whose deficit spending decisions have pushed the nation's total public debt from $930 billion at the end of 1980 to $1.8 trillion now.
Even with the new squeeze on the deficit promised by the Gramm-Rudman-Hollings legislation, the federal deficit is expected to grow by $100 billion a year through the end of the 1980s.
The United States became a debtor nation last year for the first time since World War I. The willingness of foreign investors to continue pumping money into the U.S. economy has become a vital factor for maintaining American standards of living.
In the simplest terms, the ratio of debt to the nation's overall wealth has begun rising, after a long period of stability.
Edgar J. Sullivan, chief economist for General Motors' North American operations, echoes the views of most economists on that question.
"I don't think that it's spelling any imminent problem" for the economy at large, he said. "But in all honesty, we have to say that the economy is now less shock-resistant. There is some kind of structural change that is going on."
The change is fed by powerful shifts in the makeup of the population, and in its attitudes.
To the oldest generation of Americans, for whom the memory of the 1930s' Great Depression has real meaning, there is still something ominous about debt.
But to the newest generation of adults, the "baby boomers" crowding into the economy, the plastic instruments of debt and credit sit comfortably in wallets and pocketbooks, alongside drivers' licenses and the photographs of children.
To the newer generations, debt -- or credit -- is as much a convenience as an obligation, witness the fast-growing use of credit cards for all kinds of transactions. As long as these credit bills are paid each month, they don't raise the burden, economists note.
"Not long ago, when we wanted a shirt or tie, we went to the bank, took out $100 and filled the wallet," said Fabian Linden, executive director of The Conference Board. "Today, we simply flash our credit card and write a check for the total sum at the end of the month. There's absolutely nothing wrong with it."
In the older perspective, debt was a burden, a weight, a load.
In a modern analogy, it's like the billows of hot air from the balloonist's propane torch that keep the carnival balloon flying high.
The economic balloon is flying higher than ever on its cushion of credit, and economists say the evidence indicates it can weather the recessionary storms that inevitably lie ahead, as it has in the past, for most people and most businesses.
But the higher the flight, the greater the potential risk, as history has demonstrated.
Debt is growing, after all, because there is more demand for credit and a greater willingness to supply it. "I think it's the velocity of business throughout the world, which is out-pacing the existent capital resources," said Robert E. Linton, chairman of Drexel Burnham Lambert, in a television interview last year.
Linton's firm has helped add to the supply of capital resources by creating the high-yield, high-risk securities called "junk bonds." They fill an important need, he says. "The whole system, in terms of availability of capital, has to catch up with the explosion of activity that's taken place in recent years."
That's the way debt grows -- when demand for credit increases and lenders find a way to meet it.
In the decade before the crash of 1929, consumer spending doubled in this country, the value of new housing tripled, and mortgage debt rose nearly 550 percent, economic historian Stanley Lebergott reports.
Before the '20s, most homebuyer's loans had to be paid off in five years. Then the 20-year mortgage made its debut. Before 1920, cars were typically paid for with cash. In the decade that followed, consumers began to borrow to buy cars. The combination of Henry Ford's inexpensive, mass-produced automobiles, and the sudden appearance of mass credit put Americans on wheels in the 1920s, and deeper in debt.
Lebergott concludes that "without credit, particularly consumer credit, there need not have been any crash in 1929 . . . What permitted 'over-expansion,' inevitably followed by decline and recession, was credit."
The financial markets of the 1920s and the 1980s are worlds apart.
One of the key reasons for the run-up in debt has been the increasing growth of financial markets, as the regulatory restrictions on lending have been removed, notes Lyle E. Gramley, former member of the Federal Reserve Board. The power and sophistication of financial markets is both a strength and a reason for concern, he said.
A second factor is a big increase in the willingness of consumers and business managers to risk going into debt. "We've come to assume that government will protect us," he said. "I grew up in the 1930s and the most important thing in the world was to find a steady job that would finance food and shelter."
Those basic conservative instincts are no longer ingrained. "Does this mean a more risky world? Yes, it does. There will be more failures taking place," Gramley said.
"It's almost Corporate Finance 101," said Charles B. Reeder, formerly chief economist of E. I. duPont de Nemours & Co. "For a company with a heavy debt, it's wonderful leverage on the upside." Borrowed money permits a faster expansion than the company's cash flow could produce. "But some people are taking some big risks with their organizations in incurring so much debt," he said.
The risk appears manageable to companies because of the faster, stronger flow of after-tax cash thanks to the corporate tax reduction since 1981.
If the economy remains healthy in 1986, as economists expect, there will be time for corporations to use that cash to reduce their debt or refinance it to take advantage of lower interest rates.
"What managements are betting on," said Reeder, " . . . is that if we have several years of sustained growth, they'd have time to get the balance sheets back in shape. They don't think they're risking a recession that would sink them."
The same strategy should be followed by consumers, he said. Last year, consumer spending expanded faster than consumer income, thanks to the availability of credit. "Obviously, that can't continue forever," Reeder said.
A big reason for the rise in overall debt is the impact of the "baby-boom" generation, the huge portion of the population in the 20-to-40 age group that is entering the period of greatest credit demand, said The Conference Board's Linden. There is no solid evidence that they are overextending themselves by taking on too much debt, he said.
The mortgage debt for a household at the economic midpoint or median of the population was $21,010 -- less than in 1970 and 1977 surveys after accounting for inflation.
Just as 1986 may offer businesses' a chance to reduce their debt, there is an opportunity for consumers to do the same.
The rising level of debt "only becomes a really serious problem when other things go wrong," said Reeder -- if interest rates rise sharply or the economy suddenly stalls. "Then problems start to multiply and everyone is in trouble. But that doesn't seem to be in the cards. We may adjust to this in a couple of years, and it may be simple as that."