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The Unsustainable US Economy

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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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

1 Comment

  1. David_Lazarus says:

    I never thought that the US housing market had bottomed, it was one of those stable periods when people test the market. Though the premise that wages have to go up or spending will fall is correct, but with so many people under employed the prospect of wages going up is close to zero. The japanese property market fell for decades and I think that will also apply to the US market, simply because wages are continuing to fall and that shows no sign of stopping.