Reviving demand in the face of unprecedented deleveraging on the part of consumers and corporations (leaving governments–many already indebted to an at least problematic degree) worldwide was always going to be tough. These articles pinpoint in numerous ways exactly how difficult the process will be. First, from Stephen Roach, who writes in the New York Times (thanks to Economist’s View for link) about the US consumer:
Worse, millions of homeowners used their residences as collateral to take out home equity loans. According to Federal Reserve calculations, net equity extractions from United States homes rose from about 3 percent of disposable personal income in 2000 to nearly 9 percent in 2006. This newfound source of purchasing power was a key prop to the American consumption binge.
As a result, household debt hit a record 133 percent of disposable personal income by the end of 2007–an enormous leap from average debt loads of 90 percent just a decade earlier.
The United States cannot afford to squander this opportunity. Runaway consumption must now give way to a renewal of saving and investment. That’s the best hope for economic recovery and for America’s longer-term economic prosperity.
Meanwhile, China’s economic meltdown (and thereby ability to transform itself into more of a consumer-led economy, reducing the likelihood of a serious overhang of supply and investment worldwide) may be worse than its exceptionally rapid decline over even the last few weeks suggests. Brad Setser looks at the details.
Finally, Nouriel Roubini on the increasingly desperate measures authorities will have to take to put it all together.
I’d like to say “happy reading!”, but will content myself with the wish that you (US readers anyway) had a happy holiday…