The Lehmann Letter (SM)
No one is saying that it is the best of times and the worst of times, but two recent Wall Street Journal articles portray very different scenes in the US and Europe.
Begin with the following by Eric Morath that appeared in the August 15 edition:
“Confident Consumers Step up Their Borrowing”
“After years of struggling to shed debt, Americans are finally gaining enough confidence in their finances to step up borrowing for autos, homes and other goods—a shift that could boost the economic recovery…..”
Compare and contrast that with Matthew Dalton’s piece from August 16:
“The Other Big Brake on Euro-Zone Growth: Private-Sector Debt”
“The euro-zone economy is showing signs of sputtering to life, but doubts abound about whether growth can pick up. A big reason economists are skeptical is the huge cargo tethered to the currency bloc’s rear bumper: trillions of euros in private-sector debt accumulated over the previous decade that policy makers have done little to address…..”
Those lead paragraphs are strikingly different. We will see how events unfold.
Meanwhile keep the following in mind with respect to the US. Decades of robust household borrowing fueled household purchases of homes, autos and much else. The collapse into the 2008 Great Recession occurred when the debt burden became too great, liquidity became inadequate and households had bid the value of residential real estate beyond any reasonable level.
The key question for the economy going forward: Can and will households resume the previous pace of borrowing and spending? It’s not just a matter of recovering where they were. The key issue is whether or not households can resume their upward leveraging. This remains to be seen.
(To be fully informed visit http://www.beyourowneconomist.com/)
© 2013 Michael B. Lehmann