Yesterday I said that, given the housing rebound, it seemed ever more likely that the US economy would be able to power through the budget cuts from the sequester and the fiscal cliff. This is the asset-based economy at work. There is nothing sustainable about it over the long-term.
The asset-based economy is the term I use to describe the low savings, increasing household debt nexus that had been the central hallmark of the bull market leveraging cycle. After an initial rapid deleveraging during the crisis, the stabilization in house prices has given households balance sheet support. So households are back at it again, building up debt and reducing personal savings, courtesy of the Fed and the rebound in house prices. It won’t last forever. Either wage growth has to go up or spending growth has to go down.
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