McKinsey on Deleveraging, "Painful, Lasting 6 to 7 Years"
Top management consulting firm McKinsey & Company seems to be catching on to the fact that, as Marc Faber so succinctly put it, we’re all doomed. Its McKinsey Global Institute has put out a January report with extensive findings on debt and deleveraging in world economies as a result of the global credit bubble collapse.
Here’s a description of several of the consequences:
“Leverage levels are still very high in some sectors of several countries—and this is a global problem, not just a U.S. one.
“To assess the sustainability of leverage, one must take a granular view using multiple sector-specific metrics. The analysis has identified ten sectors within five economies that have a high likelihood of deleveraging.
“Empirically, a long period of deleveraging nearly always follows a major financial crisis.
“Deleveraging episodes are painful, lasting six to seven years on average and reducing the ratio of debt to GDP by 25 percent. GDP typically contracts during the first several years and then recovers.
“If history is a guide, many years of debt reduction are expected in specific sectors of some of the world’s largest economies, and this process will exert a significant drag on GDP growth.”
Basically, the findings show that leverage problems still exist in many areas and, even where unwinding has begun to take place, there remains a great deal of pain to come.
This report came to our attention via The Business Insider and the full document is available here, “Debt and deleveraging: The global credit bubble and its economic consequences.”