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February 1, 2010 |
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This recently released report by the McKinsey Global Institute on “Debt and Deleveraging” is an interesting read and helps explain the intermediate and longer-term challenges that the economic recovery faces. It draws some of the same conclusions that Ken Rogoff and Carmen Reinhart have made in their new book, “This Time is Different".
Of particular interest is Exhibit 28 found on page 39. It shows the four typical ways in which countries deal with a large-scale deleveraging process. Growing out of debt is extremely rare. Belt tightening is the most common method, of course. It also is the most painful. The US populace hasn’t yet embraced this painful choice with growth being such a hopeful alternative.
