A Car with Two Drivers

Now for a little kernel of optimism: Federal Reserve Statistical release showing household debt service and financial obligations ratios as a percentage of income: this is a measure of how much of the public's income is currently going to service their debt.  NOTE that it is now, finally reaching cyclical lows - through a combination of de-leveraging in 2008-2010 and through reductions in effective interest rates right up to present.

See, while government policies the world over are leaning more and more into 'austerity', monetary policy has been as permissive and liquid as it can possibly get -- and while for the last 3 years it has felt like it's pushing on a string, it is now reaching a point where the effects have a chance to become visible in a big way: the consumer is finally getting back to 'comfortable' debt service ratios and is soon ready to come back for more punishment - note also that one of the reasons the current de-leveraging has gone on so long was because there was no such de-leveraging in the recession of 2001-2002.

It is this debt cycle that is one of the primary governors of our economic and business cycle.  Mind you, there can be long cycles beneath this: and generational/demographic factors, such as the current retiring of the Baby Boom generation, may limit the consumers' 'appetite' to run up consumer credit again as folks settle into a 'slower' lifestyle.  But still it's interesting food for thought.

The 'Car with Two Drivers' metaphor is a title of a chapter from William Greider's book, 'Secrets of the Temple', describing the early 80's when government fiscal policy was becoming highly stimulative while monetary policy was extremely restrictive with  veryhigh interest rates (the opposite of today's trends on both counts), like a car with two drivers, one with his foot on the gas, the other with his foot on the brake.