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Balance Sheet Compression and Wealth Effects on Consumption

Apropos of Edward Harrison’s excellent article, Recession is Over; Depression Has Just Begun, here is a graph from the San Francisco Federal Reserve Bank that brings home the severity of several points, balance sheet compression by debt and the decline of household wealth, both of which impact household consumption.  

It will take us a good while to dig out of these problems and government pump priming, while probably necessary to avoid even worse conditions, is not going to get us there, certainly, any time soon. Consumption, in our consumer driven economy, is going to remain in the pits for some time. What we really need to come up with is a faster and more efficient means of deleveraging, but none is on the horizon.