John Mauldin's Outside the Box: Working Out of Debt
This week we look at a report called “Working Out of Debt,” about debt and deleveraging, from the McKinsey Global Institute. This is a well-done summary of their longer paper, which has been updated, called “Debt and deleveraging: Uneven progress on the path to growth.” I discussed the original paper both in my regular letter and in Endgame. It is one of the best, most definitive pieces on the topic I have read. For those trying to understand how the deleveraging process will affect their particular world, I think it is a must-read. I have been spending more and more time thinking about the whole process of deleveraging, and am coming to think deleveraging is the critical and fundamental factor shaping the economic environment and impacting every decision countries and businesses are faced with. This paper was done by Karen Croxson, Susan Lund, and Charles Roxburgh; and they are to be especially commended for their insight and work.
This summary and the full report look at the relevant lessons from history about how governments can support economic recovery amid deleveraging, and at the signposts business leaders can look for to see where economies are in that process.
Overall, they tell us, the deleveraging process has only just begun: “During the past two and a half years, the ratio of debt to GDP, driven by rising government debt, has actually grown in the aggregate in the world’s ten largest developed economies. Private-sector debt has fallen, however, which is in line with historical experience: overextended households and corporations typically lead the deleveraging process; governments begin to reduce their debts later, once they have supported the economy into recovery.”
- Deleveraging, What Deleveraging? - The 16th Geneva Report On The World Economy
Link to report: Deleveraging, What Deleveraging? It is widely accepted that high levels of debt (of various forms) have played a central role in the 2008-09 global financial crisis, the 2010-12 euro crisis and many previous crisis episodes. The adverse...
- The Secret Of Bridgewater's Success Is In Its Understanding Of The Recession
Found via Canadian Value Investor. The Bridgewater view may be summarized like this:Business and market cycles occur every 5 to 8 years, and may be addressed by policy makers with a typical mix of fiscal and monetary policy.What Bridgewater calls Long...
- A Template For Understanding What’s Going On - By Ray Dalio
I provided a link to this in a previous post, but I thought I’d also give it its own post as I believe this paper from Ray Dalio is one of the most important things I’ve read all year. As Dalio mentions, there is a big difference between a normal...
- Hussman Weekly Market Comment: Extend And Pretend
Regardless of whether the U.S. banking system would not presently be able to meet its liabilities with its assets, there is another question: assuming that banks are allowed to extend and pretend for a long enough period of time, will they ultimately...
- Frbsf Economic Letter: U.s. Household Deleveraging And Future Consumption Growth
Thanks to Matt and Mike for passing this along. It seems the deleveraging process may take longer and be more painful than most people think (and certainly longer and more painful than much of the media portrays…..surprise, surprise). U.S. household...