Recent FDIC numbers are furthering economists concerns that consumers are financially over-extended and ready to cut back on spending. Too many costs are gnawing away at consumers' wallets, such as sharp price increases in healthcare, gas, state taxes and consumer goods. Compounding the problem, while the job market has improved over the last year, wage growth is not keeping up with the total cost of living. 'We are now in an inflationary cycle,' warns Richard Hastings, a retail sector analyst for New York-based Bernard Sands. 'It really is a very serious issue.

Hastings warns that home equity debt is creating a cash-strapped nation. Too many Americans are buying homes and borrowing against them to transfer high-interest credit card debt--effectively increasing their borrowing power. He estimates that the total retail spending will grow by approximately 1.0 to 1.5 percentage points less in 2004 than it did in 2003. He also expects chain store 'comparable' store sales during the 2004 holiday season will grow by approximately 2.5 percent to 3.5 percent, compared to the 4.5 percent growth rate in the previous year's holiday season.

If home equity debt keeps increasing at its current levels, it is on pace to break $500 billion by the end of 2004—a four-fold increase since March 2000. The effect could be much like the stock market bubble burst of the late 1990's. There could be a home-equity bubble burst.