Two important questions have bedeviled the nonexistent economic recovery since the U.S. housing bubble burst four years ago, plunging the U.S. into a deep recession: when will the housing market hit bottom and when will now-skittish banks ease lending standards for qualified borrowers?

There will be no sustained recovery until the housing market bounces back, and it won’t bounce back until banks find a comfortable middle-ground between “too stringent” and handing out loans to anyone.

There is a related question, though, and the answer to it may be harder to quantify than the others: when will debt-laden U.S. consumers, rightfully scared for their jobs, feel secure enough to start spending again at levels that will boost demand and give a real jolt to the economy?

It may be the most important question of all. Consumer spending, after all, represents roughly 70% of the U.S. economy. When spending dwindles so does demand. And then hiring. And ultimately the recovery.

Federal Reserve Chairman Ben Bernanke noted as much in remarks to a Congressional committee earlier this week.

“Consumer behavior has both reflected and contributed to the slow pace of recovery,” he said. “Households have been very cautious in their spending decisions, as declines in house prices and in the values of financial assets have reduced household wealth, and many families continue to struggle with high debt burdens or reduced access to credit.”

Driving home this point from a business perspective is a survey conducted in August by the National Federation of Independent Business which found that poor sales (ie., lack of demand) is the “single most important problem” facing small businesses. Twenty-five percent of the respondents cited poor sales as their biggest obstacle, nosing out government regulations and red tape at 19%.   

Employers like Howard Hellwinkel are caught in the middle. President of North Salem, N.Y.-based Hunt Country Components, which distributes the pieces used in offices chairs, Hellwinkel said lack of demand has increased competition in his industry, forcing his company to cut back to keep up.

“Because we’re in such a competitive market due to lack of demand we cannot give our employees more money to cover their daily expenses,” he said. (Friday's upbeat jobs data may offer some relief to skittish workers and those looking for work, but it's surely not enough to get consumers off the sidelines.) 

He said he’s doing all he can for the 30 employees he still has on payroll.

In what can only be described as a positive trend, household debt has been contracting steadily since the first quarter of 2008, according to Federal Reserve statistics. Consumer debt fell to $11.4 trillion in the second quarter of 2011, down 8.6% from its high of $12.5 trillion in September 2008. Mortgage paydowns have played a central role in that contraction.

While it’s good that consumers are paying down their debt, the money that’s being earmarked for mortgages, credit card payments and student loans is money that’s not being spent at Target (NYSE: TGT) or at the local hardware store.

And despite all the deleveraging, most consumers remain buried in debt. Consider the following data:

Mortgages

Mortgages make up the lion’s share of U.S. consumer debt, comprising about two-thirds – or $8.5 trillion – of the total. And, according to real estate research firm CoreLogic, nearly one in four of those mortgages is underwater, which means the borrower owes more than the home is worth. That’s a recipe for foreclosure.

Despite several costly government efforts to help struggling homeowners keep up payments on their loans, foreclosures are still on the rise. Foreclosures jumped 7% in August over July, according to housing research firm RealtyTrac, while default notices filed against delinquent homeowners rose 33% in August from the prior month.

Credit Cards

 In 2010, the U.S census bureau reported that Americans have over $886 billion in credit card debt, a figure that’s expected to rise to $1.177 trillion this year. More specifically, the report stated that each card holder has an average credit card debt of $5,100 and this number is projected to reach $6,500 by the end of the year.

With unemployment at 9.1%, wages essentially stagnant, and the costs of staples such as food, clothing and energy rising, Americans are increasingly turning to their credit cards just to make ends meet.

Student Loans

College students are defaulting on their loans in record numbers. The U.S. Department of Education recently reported that default rate on federal student loans have hit their highest level since 1997. During the third quarter of 2010, the most recent period for which records are available, 320,000 student notes fell into delinquency with loans totaling $2.4 billion.

One in ten college graduates heading out into the workforce after four years of study is doing so carrying $40,000 or more in debt, according to the Institute for College Access and Success, an advocacy group. In the current labor market, many of those graduates are finding it difficult to find an entry level job that will cover their living expenses and allow them to start paying down that debt.

A study released last month by investment firm BlackRock paints a bleak picture. The average  U.S. consumer has a debt-to-income ratio of 150%, according to the report. The ratio never exceeded 80% during the 1960s and 1970s.

Everything changed, obviously, early last decade when the financial system essentially became predicated on the false assumption that real estate prices would rise forever. That concept greased the wheels for an across-the-board credit bubble that only burst when people who never should have been given loans in the first place stopped paying them. According to the Blackrock study, the amount of leverage taken on by U.S. households rose an astounding 54% between 2000 and 2007.

Essentially echoing Hellwinkel’s concerns offered from the front-lines of the economic maelstrom, the Blackrock study concluded that the recovery will continue to falter until the job market picks up and consumers gain enough confident to start spending a few extra dollars.

“Until these conditions are fulfilled, it is very difficult to see how the U.S. consumer can return to anything like prior spending levels, which has vitally important implications for the household sector’s ability to spur more rapid economic growth,” the study warns.

Follow Dunstan Prial on Twitter @DunstanPrial