July 5, 2010
Peter Cecchini, chief strategist at BGC Financial, talks to Pimm Fox about the U.S. economy and consumer credit on Bloomberg Television’s “Taking Stock.” He says that the 122% percent household debt to GDP ratio is well above the pre-1980 average of 60-80%. Just to get back to a 100% to GDP ratio, we need an additional $2 trillion of deleveraging. In the absence of income growth, you just aren’t going to get these numbers down without deleveraging.
This is the major reason I have said that household deleveraging has just begun and that we will be in a balance sheet recession for the foreseeable future. Cecchini says the fake recovery has really been just a liquidity trade, one that has run out of steam. Could we be on the cusp of another more powerful liquidity trade? I think so. But more on that later in the week.
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