I wanted to share the following charts from Deutsche Bank:
As you can see on the left, the U.S. has made quite a bit of progress overall deleveraging since the financial crisis. in fact, if you add up all debt (including households, businesses, financial institutions and government), total debt to GDP has fallen by 30 points (from 370% to 340%).
The Federal Reserve purchases in 2008 were basically a transfer of debt from the private world (individuals and banks) to the government and while the government has continued to pile on the debt in the last four years, the other three players have been reducing their debt loads. We all know the current trajectory of government debt accumulation is unsustainable, but I would say the same for the declining debt levels of the other three players.
So, what does this mean going forward? Simply, if the private sector in the U.S. actually stops shrinking its balance sheet, the recovery may normalize. And I do not have to mention the value of a dollar spent by the private sector versus what the government might spend it on...