Tuesday, February 10, 2009

Some stats

I just came from a somewhat terrifying lecture by Lowell Bryan, who heads (or co-heads or whatever) the financial services practice at McKinsey. McKinsey has been studying the causes and potential cures for the global economic crisis.

Basically, the total US debt is about 24 TRILLION dollars, or about 300 percent of GDP. This debt is the result of consumers/taxpayers borrowing more than they earned ever since the Bretton Woods system broke down in the early 1970's. The inevitable rebalancing to correct the current deficit has been predicted for years and finally happened. It spread to Europe mainly because European banks were issuing dollar-denominated commercial paper, converting the proceeds to Euros and lending them. This system collapsed when US credit markets froze last year. For a while Asian economies thought they would miss the contagion but their economies require US and European consumption. That went away. Q.E.D.

What to do?

For firms, most of the obvious stuff has been done and there aren;t any easy answers. Same for consumers.

As an fyi, Bryan claims he moved every liquid financial asset he could into cash in late 2007, which has worked out pretty ok for him. His illiquid assets? mainly property in Nantucket and Florida.

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