Here are the first signs of light at the end of the "balance sheet recession" tunnel. According to the N.Y. Fed, consumers took on debt for the first time in four years in Q4:
NEW YORK -- In its latest Household Debt and Credit Report, the Federal Reserve Bank of New York announced that in the fourth quarter of 2012 outstanding consumer debt increased slightly ($31 billion), breaking the downward trend observed since the fourth quarter of 2008. The increase was primarily due to a rise in non-housing debt and the stabilization of mortgage debt.
Total consumer indebtedness was $11.34 trillion, 0.3 percent higher than the previous quarter but considerably lower than its peak of $12.68 trillion in the third quarter of 2008. While outstanding mortgage debt remained roughly flat, originations of new mortgages rose to $553 billion, a fifth consecutive quarterly increase.
Non-housing debt balances increased for the third straight quarter and now stand at $2.75 trillion, up 1.4 percent in the fourth quarter. All non-housing components increased; auto loans up $15 billion, student loans up $10 billion and credit cards up $5 billion.
'The data provides early evidence that consumers may be reaching the end of the four year deleveraging cycle, though we’ll need to see if this is sustained in upcoming quarters,' said Andrew Haughwout, vice president and economist at the New York Fed. 'At the same time, we observed mixed developments, mortgage originations increased and fewer accounts entered the foreclosure pipeline but delinquency rates remain considerably higher than pre-crisis levels.'
I think my estimate of the BSR ending in 2013/2014 was probably a bit aggressive, even though consumers are taking on more debt at present. After all, this is a data series that has consistently averaged a 7% rate of change on an annualized basis and is presently sitting at 0% essentially. So, we're making progress but there's still a lot of work to be done here before the private sector can run with the baton.
Remember, we have a monetary system whose expansion is designed entirely around inside money or bank money. This is a crucial element in sustainable private sector expansion. We're trending in the right direction, so there's no need to alter the course now.