Tuesday, December 7, 2010

Reality: The American Consumer is Deleveraging

Adjusting for the FASB accounting changes effective end of Q1 2009, there has been a $105 billion dollar drop in consumer loans since the peak in February 2009, and has been trending steadily down.
What does this mean?  Generally speaking, in a fractional reserve system, debt must increase in order for the economy to grow.  Debt decrease = economic decrease.  Ergo, I would anticipate disappointing sales figures in aggregate when 4Q earnings are reported in January/early February. 

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