BlackRock's Koesterich: Deleveraging — What Deleveraging?

Monday, 11 Aug 2014 08:38 AM

By Dan Weil

  Comment  |
   Contact  |
  Print   |
    A   A  
  Copy Shortlink
The idea that the country is deleveraging — reducing its debt — is a myth, says Russ Koesterich, chief investment strategist for BlackRock.

"Like all myths, there is a kernel of truth," he writes on the firm's website. "The U.S. financial system has indeed made significant strides in reducing leverage, and U.S. banks are better capitalized."

But when it comes to the economy as a whole, "there has been no deleveraging. In fact, as revealed most in the latest revised GDP figures, we’ve generally seen quite the opposite," Koesterich says.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000

For instance, he notes, U.S. household debt stands at 103 percent of disposable income. As for corporate debt, during the last six quarters, it has climbed at an average annualized rate of 9.5 percent. "Meanwhile, federal government debt has exploded," Koesterich writes.

Overall, "during the period of so-called deleveraging, non-financial debt has increased by roughly $9 trillion."

The long-term implications for the economy: "slower growth, a persistent headwind for consumers and vulnerability to even a modest rise in interest rates," he notes.

"Over the longer term, a high and growing debt burden has several implications for the U.S. economy: slower growth, a persistent headwind for consumers and vulnerability to even a modest rise in interest rates (this is particularly true for the federal government, where an improving fiscal picture has been flattered by artificially low rates)," Koesterich explains.

"In fact, the rising U.S. debt burden is one of the reasons why I continue to advise caution toward consumer sectors as well as why I have more modest expectations for long-term U.S. stock returns."

Meanwhile, Larry Summers, former economic adviser to President Obama, says the U.S. economy has suffered major flaws that date back even prior to the 2007-09 recession.

"It has been a long time since the American economy has grown rapidly in a financially sustainable way," the Harvard professor tells New Republic magazine.

The Federal Reserve's low interest-rate policy hasn't been able to solve the problem of savings exceeding investment, he says.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

Related Stories:

© 2014 Moneynews. All rights reserved.

  Comment  |
   Contact  |
  Print   |
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
Zip Code:
Privacy: We never share your email.
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
You May Also Like

Morici: Obama Could Stifle North Korea's Shakedown of Sony

Monday, 22 Dec 2014 09:08 AM

The American people now have a censor , North Korean Dictator Kim Jong-un. And they can thank President Obama's failure  . . .

Roubini: Japan, China, Eurozone Among 5 Biggest 2015 Threats

Sunday, 21 Dec 2014 18:06 PM

Ace economist Nouriel Roubini of New York University and his colleagues at Roubini's Edge, a free web site for individua . . .

The $6.3 Trillion Bidding Frenzy That Vanquished Treasury Bears

Monday, 22 Dec 2014 08:27 AM

When it comes to the ability of the U.S. government to finance itself in the bond market, this year will go down as as o . . .

Most Commented
Top Stories

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

America's News Page
©  Newsmax Media, Inc.
All Rights Reserved