Tag: deleveraging

Rising global debt levels will trigger the next crisis

Rising global debt levels will trigger the next crisis

The conclusion of the recently released Geneva report is that debt is the Achilles heel of this cyclical recovery. The Geneva economists warn that, despite the widespread belief that a general deleveraging has occurred due to the Great Financial crisis, in reality debt levels are higher today on a global basis than they were when the crisis began. They, rightly, worry that this debt will precipitate another global economic crisis. Some thoughts below

Household debt versus wage growth in the United States

Household debt versus wage growth in the United States

The economic and business paradigm in place in the United States is predicated on a secular increase in household debt that I believe will not last through another cyclical downturn without serious deleveraging. The reason we saw deleveraging during this past downturn was because we are now at a point where the secular increase in household debt has become unsustainable. Some thoughts below

The perils of private sector deleveraging in the Eurozone

The perils of private sector deleveraging in the Eurozone

Private and public debt in the Eurozone increased since the 2000s, and especially so in certain countries. This column presents evidence that high levels of private and public debt, together with deleveraging of all sectors, are especially harmful for economic growth. Private sector debt is more detrimental to growth than public sector debt. Therefore, policies aimed at reducing the private debt could yield important benefits.

How the United States gets deflation and becomes the next Japan

How the United States gets deflation and becomes the next Japan

I spoke at a Euromoney conference on inflation-linked products last year. My thesis at the time that deflation is the real problem and that inflation isn’t going to be a concern – which has largely proved right – was out of step with most people at the conference. I still believe this is the case. And as I prepare to attend this year’s conference on the same topics, I have begun to think again about the deflation and inflation issues. This post on how the US becomes the next Japan is an outgrowth of that thinking.

Japan: Some quick thoughts on Abenomics

Japan: Some quick thoughts on Abenomics

This is just a quick follow-up to the last post on debt deflationary dynamics in Europe and the contrast to policy in Japan. I think Yanis Varoufakis has it right that Europe is on the same path as Japan but just not as far along the path. And I would say the same is largely true of the United States.

Canadian households may face more deleveraging

Canadian households may face more deleveraging

Some recent data out of Canada points to a slowdown in growth of consumer indebtedness. According to RBC, the non-mortgage consumer debt has grown at the slowest rate in 20 years. This is clearly a positive development, but when taking mortgage debt into account, Canadians still represent some of the most indebted households in the developed world.

The Need for Wholesale Change

The Need for Wholesale Change

In the short term, though, a continuation of the currently lax monetary policy is likely to lead to higher assets prices. The investor mindset is very much in risk-on mode at the moment, as documented by the surprisingly calm reaction to the crisis in Cyprus. Mind you, none of this incorporates the risk of an outright war between the two Koreas or an escalation of hostilities between Israel and Iran, just to mention two wild cards. Barring a Black Swan event, though, we are on relatively firm ground for now, but the seeds of the next crisis have already been sown.

The Unsustainable US Economy

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.

US Housing and Economy and Reaching for Yield

US Housing and Economy and Reaching for Yield

Today I thought I would try a little experiment by beginning to write a daily commentary. I have been thinking about doing this for a while and decided I needed to give it a go here because I don’t have an in-depth article I am working on. So now seems a good opportunity to make some general comments on the markets and the economy. I have a few topics in mind but let’s start with this one: housing. And then we will move on to the economy and ‘reaching for yield’.