Good piece by FallStreet’s Brady Willett, titled “The Myth of Deleveraging.” Eye-popping charts as well….
The U.S. consumer spent more than 2-decades amassing debt at an unsustainable pace, and along the way they embraced an erroneous faith that their investments (or yesterday’s ‘savings’) would always bail them out trouble. Given that this ‘faith’ has been shattered, it is entirely reasonable to conclude that it will an extended period of time before the type of balance sheet leverage seen in recent memory returns (if ever).
Many economists and policy makers do not agree that a prolonged period of balance sheet deleveraging is in the works, and instead speculate that any improvement in household balance sheets is one reason to eye another consumer binge:
“Stronger balance sheets should in turn allow households to increase their spending more rapidly as credit conditions ease and the overall economy improves.” Bernanke
Not only does the consumer have a long way to go before its balance sheet can be considered ‘strong’, but the very idea that deleveraging today produces consumption tomorrow is suspect. Quite frankly, the end result to ‘deleveraging’ may simply be a more sustainable balance sheet rather than a balance sheet ready to support an increase in consumption.
http://www.fallstreet.com/sept2010.php
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