Most facets of the American economy have been moving along at a relatively robust pace in recent years. Signs of this success are plentiful. The Dow Jones industrial average is near a monstrous 12,000. Foreign direct investment grew by 67% in 2006. The annualized rate of growth of our gross domestic product is 3%. Core inflation (which does not include food and energy) is expected to rise at decelerated rate versus recent trends.

Despite all of this good news and more there exists a need for real concern regarding continued economic success. As a matter of fact, there should be concern as well for the legitimacy of what is and has occurred in the economy. The causes of this trepidation are consumer behaviors and the use of credit.

Consumers are the most important component of free markets and they are what drive the economy. This is especially the case in the United States where materialism is king and people want endless supplies of consumer goods and services. Unlike the case in most nations, there is a certain level of luxury that exists across all social classes in our country. Thanks to modern high-tech and/or global manufacturing even the poorest of Americans can and do buy discretionary items like gadgets, entertainment systems, and multiple vehicles.

This opulence and lack of frugality seems to grow larger in each subsequent generation. The generation that grew up during the Depression was raised in and thusly lived a life of fiscal prudence. They lived within their means but spawned a trend of materialism that was a result of technologies produced in the robust post-WWII economy. Their children (the Baby Boomer generation), almost in act of rebellion against what they did not have growing up, spent and continue to spend at high rates and are the generation most responsible for America’s materialism mystique. Their children (Generations X and Y) keyed off such behavior and are proving to be even more materialistic, hence their role as the key target audience in most marketing endeavors.

With this urge to buy and keep up with the latest trends if not "the Jonses" comes a lack of thriftiness. Americans consumers are spending at unprecedented levels. At first glance that’s a good thing. But, understand that it’s a tenuous line they tread because more so than ever before they are spending money that they don’t have.

In 2006, for the second year in a row, personal savings rates were negative (-1%). The average consumer spent all of his/her earnings and then some, leaning on borrowing and financing. In 2005 this negative scenario occurred for the first time since the days of the Great Depression (1933). This has transpired thanks to gimmicky credit card plans, the extreme ease in obtaining credit, and the willingness of consumers to carry credit. People are consciously allowing themselves to live beyond their means.

There comes with this way of life a huge personal risk. A report issued last week indicated that the credit issue has become so bad that a growing number of homeowners are defaulting on their mortgage payments (especially in the sub-prime market) and foreclosures have reached a four-decade high. Also, many people are still declaring bankruptcy despite the passing of the federal government’s bankruptcy act in 2005, which was supposed to prevent the fiscal abuses that lead to bankruptcy.

The end result of this heightened personal risk is an even greater economic risk. We may be living in a "false economy". The desire by the consumer class to spend beyond reason means that the "money" being used to buy consumer goods and services is not real. Goods and services are being transferred via electronic non-cash funds in a veritable food chain of financial middlemen. Our economic system is perpetuated by what could be considered legalized money laundering for most of our nation is accounting for money that really does not (and may never) exist. The credit card and loan companies are fronting consumer expenditures and not being paid on the backend, meaning that far too many transactions being done in our economy have no true backing.

Under such circumstances one has to worry about the economic bubble bursting one day. Yes, times are good now, but the reality of their value is suspect at best. Cumulative consumer debt and the inability to satisfy it may one day yield a universal debt that invades all facets our economy, sending us into a recession or depression that will be difficult to escape, especially with the luxurious mindset of nearly all US consumers.