The Fed’s Q4 2009 Flow of Funds statement is out. For those who aren't savvy to this report, it shows the balance sheet of the US, including households, companies and government. It reveals an improvement in the aggregate debt levels on an absolute basis but, shall we say, progress is slooow. Household debt (home mortgages and consumer credit) as a percentage of disposable income fell to 115% from 117% in Q3, vs 121% in ‘08, and versus the record high of 125% in 2007 and is back to the lowest level since 2004. However, it remains well above the level of 10 yrs ago (91%) and 1995 (83%).
It is my belief that we have to work back toward those 1995 levels in order to have the economy back on a sustainable path. Leverage does not produce wealth.
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