Wednesday, Jan 20, 2010
Deleveraging hasn't yet started
McKinsey: Debt_and_deleveraging_full_report
Good slightly lengthy report that deleveraging hasn't begun yet, not for the UK, or any country in fact. Looks at historic examples and suggests austerity will be chosen as the way out. Japan debt not so bad because cancels out to 145% of GDP. Suggests that politicians must grasp the nettle of real estate leverage whether through regulation or deposit requirements. Suggests that there won't be the expected UK economic rebound for some time, more of a tepid style status-quo, growth being limited by debt essentially. Number of points all look bad for housing including suggested cancellation of favourable tax treatment.
Posted by stillthinking @ 02:16 PM (769 views) Add Comment
8 Comments
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1. 51ck-6-51x said...
A good report indeed.
Well I think it's started, but it's far from finished! I think it seems to have got further in the US than here too. It also shows how the UK is right up there with Spain on how big the credit bubble was ( although there is the argument that we can fair it better as much of our debt is denominated in our own currency )
"""
Rising housing prices meant that the ratio of household debt to assets appeared stable in the years prior to the crisis. But household debt compared with disposable income increased significantly, which should have raised a red flag long before the crisis hit.
"""
- Err, it did ...on this very site :)
2. 51ck-6-51x said...
Although the report states that the UK has deleveraged more than the US ( mainly due to the financial sector's share of GDP here I suppose ) - see Exhibit 21
3. stillthinking said...
Things have just started. Here we go, or not.
4. devo said...
Now! That's What I Call Deleveraging !
http://www.equitymaster.com/5minwrapup/images/2009/040709-The-deleveraging-of-households-has-begun-Equitymaster.gif
5. icarus said...
Doesn't address the important question: how impaired are bank balance sheets?
Gives the impression that financial sector leverage is generally not great, but that leaves out the role of the shadow banking system (institutions and instruments) in increasing off-balance sheet leverage in some countries (US, UK). And why are banks still so unwilling to lend after all the bailouts if there's no great need to deleverage?
And they say little about the role of securitisation in moving loans off bank balance sheets.
6. devo said...
5. icarus said... Doesn't address the important question: how impaired are bank balance sheets?
Three years since the credit crunch bit and a clever lad like you still doesn't know the answer!
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8. drewster said...
stillthinking - thanks for the excellent post!