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It’s not quite “The Deleverage Manifesto” that I had in mind, but in a long multi-part post at The Big Picture, John Mauldin echoes James Carville in a section subtitled “It’s the Deleveraging, Stupid!” while summarizing a new study by the McKinsey Global Institute on recoveries following periods of overleveraging.
Boiled down to its Extra Reduced Secret Sauce version: the world economy still has to pay off a lot of money it shouldn’t have borrowed; that includes consumers, so don’t expect a consumer-driven economic recovery; and all this paying back could take a long time — even if Prez B Cool is re-elected in 2012, we may still be paying off our debt hangover when his successor is sworn in to office.
Keep your credit lines short and your cash on hand, folks!
UPDATE:
Dan Amoss at The Daily Reckoning predicts that the commercial real estate market will see real pain soon as underwater mortgages cannot be refinanced and properties are liquidated, adding its own flavor to the debt hangover:
The REIT sector has already “priced in” the typical sharp post-WWII inventory-led economic recovery. But I expect a very tepid, narrow recovery with a “double dip” recession by late 2010. The current “recovery” is not typical. It is merely a stimulus-induced bounce in the midst of what will likely wind up as a decade-long deleveraging, downscaling economy.
Cash will be king. Mend your balance sheet.
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Tags: deleveraging, economic crisis, financial crisis, James Carville, McKinsey & Company, World economy
