“The larger story,” opines Rob Parenteau, keeping a sturdy eye on the macro picture for us, “can be found in the deleveraging effort of households, which accelerated in the fourth quarter of 2008.
“We have never seen such a sustained buildup of credit flows to the U.S. household sector like the one that began in the late ’90s. Nor has the U.S. economy experienced such a reversal of household credit flows since the Great Depression.
“Policymakers, investors and entrepreneurs need to grasp this essential piece of the puzzle:
“There are good reasons why the household sector is paying down debt in an environment of declining asset prices and personal income. Falling asset prices reduce wealth faster than households can pay down debt.
“We believe this has a number of very important implications, not the least of which is for the restructuring of global growth away from a growing dependence on consumer debt binges in Anglo-American developed nations. Not to mention the policy objective of renewing lending to the private sector… it’s misguided.”
Yet it’s the very core of the justification for the TARP bailout and the broader congressional stimulus plan. Rob unpacks this phenomenon in the latest issue of The Richebacher Letter, entitled “Deleveraging Demystified.” You can learn more on the site.
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