Deleveraging is the word of the year
The Economist featured this great article today about the fact that not only financial firms but businesses and individual households will be forced to deleverage over the course of the next few years.
Among the points that I found interest in:
*In the near term delveraging of banks, hedge funds, and households will likely depress asset prices lower. This is because as people sell assets to pay-off debt (deleverage) they will increase the supply of assets in the marketplace.
*Even if the bailout plan goes through the financial industry will likely suffer for sometime making credit harder to come by.
*Thanks to the impact of devleveraging, “a shortfall of bank capital of around $170 million may reduce the potential supply of credit by $1.7 trillion.”
*”Morgan Stanley reckons that total American debt (ie, the gross debt of households, companies and the government) has risen inexorably since 1980 to more than 300% of GDP (see chart), higher than it was in the Depression.”
Posted: September 29th, 2008 under Credit, Credit Crisis.
Tags: credit, credit crisis, debt to GDP ratio, deleverage, economist article, unwinding of credit
Comments
Pingback from My Mind on Mortgages » Deleverage post #3
Time November 14, 2008 at 9:05 am
[...] blogged about the process of “deleveraging” balance sheets for US households back in September and October. Deleveraging is the process of US households reducing their debt and hopefully [...]
Pingback from My Mind on Mortgages » Deleverage post #4
Time December 1, 2008 at 9:32 am
[...] -numero uno [...]
Pingback from My Mind on Mortgages » Deleverage post #5
Time October 8, 2009 at 6:03 am
[...] in September 2008 I wrote this post on household deleveraging. Although I haven’t posted on this subject in a while it is clear [...]
Pingback from My Mind on Mortgages » Deleveraging begins according to Fed data
Time October 8, 2008 at 11:47 am
[...] Back on September 29th I wrote this post regarding the concept of “deleveraging”. Over the past few decades American households and corporations were addicted to debt. We used credit cards, home equity lines of credit, mortgage loans, auto loans, etc. to accelerate our consumption. [...]