IT TURNS OUT DE-LEVERAGING IN THE U.S. MAY NOT TAKE FOREVER, AFTER ALL

How goes the de-leveraging of the developed world? McKinsey has the answer:

[M]ajor economies have only just begun deleveraging. In only three of the largest mature economies-the United States, Australia, and South Korea-has the ratio of total debt relative to GDP fallen. The private sector leads in debt reduction, and government debt has continued to rise, due to recession. However, history shows that, under the right conditions, private-sector deleveraging leads to renewed economic growth and then public-sector debt reduction.

Actually, in the U.S. things are considerably better than that downer of a bullet point implies. Financial debt here has fallen to $6.1 trillion from $8 trillion, McKinsey says; as a percentage of GDP, it’s back where it was in 2000. Household debt has dropped by $584 billion from the peak, or 15 percentage points of disposable income. At this rate, households will be done de-leveraging by mid-2013. That is hardly a bleak outlook, and is in sharp contrast to all the “new normal” talk we’ve gotten so used to hearing about. I expect that stock market to notice any day now. . . .