22 Jun 2012

Debt and deleveraging

Uneven progress on the path to growth

Report from the McKinsey Global Institute. Puts UK aggregate debt at around 507% of GDP mid 2011. This seems a tad low compared the the ONS figures that put private debt at about 430%, household at 96% and government at about 88%.  Giving us a total of 614% of GDP. Note how much more indebted we are than everyone except Japan. MGI conlude:
At the recent pace of debt reduction, we calculate that the ratio of UK household debt to disposable income would not return to its pre-bubble trend for up to a decade. Overall, the United Kingdom needs to steer a difficult course: reduce government deficits and encourage household debt reduction—without limiting GDP growth. The United Kingdom will need renewed investment by nonfinancial businesses to achieve this. (p.6)
The report is based on a study of a number of historical events comparing "deleveraging" events - where leverage is the ratio of debt to assets.

But the problem is that non-financial business is mortgaged to the hilt. Can we really expect banks to ramp up lending?

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Keep is seemly & on-topic. Thanks.