The Weak Recovery | Leeds on Finance

The Weak Recovery | Leeds on Finance.

The Weakness

  1. Overleveraged.  In Q3 of 2007, US households collectively had borrowed 127% of their annual incomes.  In the 1990s, the average was 84%.  We are down to 112% (as of Q1), in part because banks have written off some debt as uncollectible.
  2. More deleveraging to come.  To get back to 84%, households either need to pay down another $3.3 trillion of debt or see their incomes rise $3.9 trillion.  Credit Suisse estimates that this is equivalent to about nine years’ worth of income growth in normal times.
  3. Reduced consumer credit.  Banks have reduced credit card lines from $3.04 trillion to $2.69 trillion.  They’ve reduced home equity credit lines from $1.33 trillion to $1.15 trillion.

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