Good News, Bad News

Cullen Roche always seems to have interesting things to say but it takes some background in monetary theory to stay with his arguments. He has an interesting piece today regarding what he calls a Balance Sheet Recession (BSR) and how this is the economic malaise we're currently experiencing.

"The truth is, we’re in a balance sheet recession and as the government slowly peels away the spending that has propped up the U.S. economy, the consumer will prove weak once again.  So, the bad news is we’re still in for a muddle through period.  The good news is the deficit will remain large enough to avoid substantial economic contraction."

I don't agree with him regarding a need for government spending and he's not a Keynesian but he is quite right about a few things. 

Before the Great Recession started, in late 2007, I was chatting with a stock broker friend about the recession we both knew would be fast upon us.  I predicted then that the pending malaise would last until 2017 and I still hold to that. It will take the households that long to bring their debt down to historic levels. 

Check out Roche's article and, in particular, his graph on the historic trends of household debt.

And, yes, this may sound dry-as-dust but it's still worth a few minutes of your time.