US Households deleveraging – Fed Res San Francisco

Hat tip to Mike Shedlock for pointing out this bit of research –

This is the Federal Reserve’s own research and opinion. Excerpts:

” U.S. household leverage, as measured by the ratio
of debt to personal disposable income, increased
modestly from 55% in 1960 to 65% by the mid-
1980s.Then, over the next two decades, leverage
proceeded to more than double, reaching an alltime
high of 133% in 2007.That dramatic rise in
debt was accompanied by a steady decline in the
personal saving rate.The combination of higher
debt and lower saving enabled personal consumption
expenditures to grow faster than disposable income,
providing a significant boost to U.S. economic growth
over the period.
In the long-run, however, consumption cannot grow
faster than income because there is an upper limit
to how much debt households can service, based on
their incomes.”

The above text says in plain language that debt expansion, thus consumption thus inflation has an upper limit. If you read some of my previous essays, you’ll remember I also told you that what is true for the households of a nation is also true for government. If households hit the buffers, so will government.

Now, once the industrialized West has to deleverage and can’t make good on its financial obligations, then what? Are we going to call in the IMF? If you believe that is possible, then we have nothing to worry about. I, however, say that before any Western country decides to come clean, our leaders will engineer a global war.


Since the start of the U.S. recession in December
2007, household leverage has declined. It currently
stands at about 130% of disposable income. How
much further will the deleveraging process go? In
addition to factors governing the supply and demand
for debt, the answer will depend on the future growth
trajectory of the U.S. economy.While it’s true that
Japanese firms and U.S. households may differ in
important ways regarding decisions about paying
down debt, the Japanese experience provides a recent
example of a significant deleveraging episode that
took place in the aftermath of a major real estate
bubble and is useful as a benchmark.
The Japanese stock market bubble burst in late 1989,
followed soon after by the bursting of the real estate
bubble in early 1991. Nearly 20 years later, stock
and commercial real estate prices remain more than
70% below their peaks, while residential land prices
are more than 40% below their peak.

All I can say is that upon the bursting of the Japanese bubble, not only did the Japanese have a very high savings rate but the world economy was still on an expansionary trajectory. Today, not only does the West have exceptionally low savings but we are witnessing the synchronized implosion of world trade. This is evident in the rapid drop in industrial capacity utilization.

Read the whole 3 pages and take a look at the graphs


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2 Responses to “US Households deleveraging – Fed Res San Francisco”

  1. guidoamm Says:

    No need to be depressed. There are means at our disposal to do something about the situation. Peaceful means. Things like passive resistance and/or accumulating gold. The latter is probably the thing our “leaders” fear most as it is anathema to the current monetary and banking systems.

  2. Survive Unemployment Says:

    Yeah, it’s entropic. The U.S. economy has lost 6-7 million jobs in the past year. It needs to create 100,000 per month just to keep pace with population growth. People have no savings. It’s damn scary.

    Global war as a solution is… well, it’s scary. It worked in the ’40s, but I’m not sure that it’s such a good idea when there are so many nukes floating around.

    (Why not be depressed? To be happy these days would be psychotic.)

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