The Bankwatch

Tracking the consumer evolution of financial services

US households have borrowed an entire year’s worth of the production of the entire economy

The video and the pdf record the discussion moderated by McKinsey.  This quote summarises for me and the longstanding position of this blog that Government is wrong to speak about recovery.  While the debate is US centric, the characteristics broadly apply to US, Canada, UK, and Euro countries such as Spain. 

Brian is the General Counsel of the SEC. 

The Future of Capitalism, Credit and Leverage | McKinsey

Brian Cartwright: When you look at the leveraged nature of, let’s say, the consumer, it’s about 70 percent of the economy. So, if we’re going to have an economic recovery—and I would say the liquidity crisis is over, but the economic crisis is far from over—the consumer has got to come back.

But US households are carrying debt that’s about equal to the GDP. Put that another way, just unpack it: that means all of our households in aggregate have borrowed an entire year’s worth of the production of the entire economy. When I was growing up—that was a while ago, but still—it was about half that. And I’m not sure where the right number is, but it would seem quite plausible that we now need to do a good deal of deleveraging, which means people have to save rather than consume. That would seem to be a big negative for an economic recovery.

Relevance to Bankwatch:

The implication for banks and their competitors is that products must be re-defined to reflect a saving and de-leveraging consumer marketplace.

Written by Colin Henderson

March 26, 2010 at 22:23

Posted in economy

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