Thursday, September 10, 2009

Private Borrowing

The Lehmann Letter ©

The rest of the economy stalled when home prices and home sales began falling in 2006. The financial crisis, for instance, began with the debacle in mortgage-backed securities.

Mortgage borrowing is an important component of total borrowing and the following chart illustrates their demise. The economy can’t recover strongly unless this line heads sharply upward.

Chart 6.3 Private Borrowing

(Click on image to enlarge.)

Recessions shaded

Purchasers put fewer dollars into the spending stream when borrowing contracts. Total spending falls even more if borrowers repay their debts, as they recently have.

Demand will grow sharply when – and only when – buyers begin borrowing freely once more in order to finance their purchases. As long as they scrimp and save, guarding their balance sheets, demand will remain in the doldrums.

(The chart was taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2009 Michael B. Lehmann

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