[Rosenberg] cites a McKinsey report that analyzed 45 other historical examples of deleveraging and found that in the absence of war, default or a move to hyper- inflate, the average length of time the country spends in its deflationary deleveraging phase is seven years in the aftermath if its crisis, and that the total debt/GDP ratio is sliced by one-quarter.
...Chart 5 is total debt divided by nominal GDP...the ratio is at 369% and it peaked in the first quarter of the year at 373%. Slicing this by one- quarter would take the ratio down to 300%, which would mean going back to the levels that prevailed just before the post-WWII secular credit expansion turned parabolic in 2002. That hardly seems Draconian and would still leave the national debt/income ratio well above historical norms. But the process of debt reduction would drain nearly $10 trillion out of the economy. How you come up with a bear market in bonds or inflation under that scenario would require a complete re-write of the economics curriculum across every university and college in the country.
Hello, for all students (at least high-school and the undergraduates) and others with an interest or enrolled in economics I have started a blog which will comprise study literature in a more entertaining form than standard textbooks, seeReplyDelete
CrisisMaven’s Economics Study Guide. While still in its initial stages it will be added to constantly and covers general ecenomics subjects while at the same time dealing with current topics from the news that provide a welcome backdrop to an elucidating chapter in economics as well, e.g. Of Mortgage Brokers, ARMs, Attrition and Marathons .