Friday, January 25, 2013

The Balance Sheet Recession

Debt to equity; this is what I came up with: the graph illustrates the jump in the ratio due to the overvaluation of debt (as an asset).  As I see it, debt is an asset (traded like a commodity), but (as Minsky said) credit is money.
The balance sheet ratio of debt to equity for the US: total credit market debt, and home owner and corporate equity.
To get back to pre-balance sheet bubble levels, the US must paydown its debt until debt:equity is roughly 1.5.
Richard Koo gives a brief review of what is a balance sheet recession.

1 comment:

  1. Good link. I've heard a lot about Richard Koo, but it's better to hear from the man himself.