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We Owe, We Owe

Baseball, apple pie, and debt -- it doesn't get more American than that.

On Tuesday, the Federal Reserve announced that U.S. consumer credit grew $8.2 billion in August to a seasonally adjusted $1.956 trillion. That's on top of 4.3% growth in 2002 and 7.3% in 2001.

Of course, it's not big news that we're a country of debtors. And it's not exactly discouraged. After all, more than two-thirds of the country's economic activity comes from consumers. It's almost unpatriotic not to spend, spend, spend.

That's what the government's doing, borrowing trillions of dollars with the expectation that, one day, its ship will come in. According to The Denver Post, in one year the total national debt (including what the government owes itself and the public) swelled to $6.81 trillion from $6.23 trillion. That's more than $23,000 for each American.

Surely, this can't go on forever. People have already begun talking about a credit "bubble," where we -- individually and as a country -- owe so much that our debt-buoyed economy collapses. A CNN/Money article points out that, as a percentage of disposable income, consumer credit and mortgage debt have never been higher. At some point, many consumers won't be able to pay their bills. In fact, reports that credit card and home equity loan delinquencies rose in the second quarter.

It's a national conundrum, but the solution begins at home. After all, dear reader, you don't have much control over how your neighbor or your president spends money. (Unless you are the president, in which case permit me to request that you hunt down corporate wrongdoers with the same fervor that you pursue terrorists. I would have no qualms if you sent Ken Lay and Bernie Ebbers to Guantanamo Bay.)

But you do have control over how you allocate your resources. So perform this little exercise: Examine your most recent credit card statement. Look at each purchase, then ask yourself this: What did I get from that purchase? Was that dress/tool/meal something I truly enjoyed, or was it something that will be seldom used or enjoyed, relegated to my closet/garage/thighs?

Surely, with so much consumption -- funded by more and more debt -- there must be diminishing returns. We're not talking self-denial necessarily; just an awareness that a "buyer's high" is fleeting, but thousands of dollars on a credit card that charges 18% a year can be forever.

For more on the wild world of credit -- including how to use it wisely -- visit The Motley Fool Credit Center.

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