Wake Up America Redux

clipped from market-ticker.denninger.net I have often been asked what it would take to bring the consumer credit picture back into balance with incomes.  My "off the cuff" estimate was that we had to take a 10% adjustment to GDP in 2000, a 20% adjustment now, and that credit would have had to contract by about 20% in 2000. This graph makes it clear - as of 2006 the answer is "roughly a 40% decrease in credit outstanding, a 40% increase in per-capita income, or any combination of the two." Of note the "correction" required was 25% in 2000.  It was 40% in 2007.  It is likely better than 50% now. This graph, more than any other, illustrates the folly of "kick the can" when it comes to recessions.  We are in this recession and facing an economic depression due to consumers "hitting the wall" - the spread between per-capita income and per-capita debt became impossible to service, and the defaults started to snowball. There is no path out of this mess that involves taking on more debt Wake up America.