SocGen: There Is No Way Out Of This Mess But Continued Massive Deleveraging

Societe Generale analysts are pointing towards a long and hard road out of our current debt crisis, which could see the U.S. engage in a Japan-like period of deleveraging, according to FT Alphaville.

The report points to a long term reduction in credit, which will require households to deleverage, and result in a debt reduction worth 60% of GDP. The impact will be the end to the recovery as we know it, due to a prolonged slowing in expenditure, as both firms and individuals seek to pay off their debt.

Soc Gen Credit

Photo: FT Alphaville

Theoretically, this could also see a stagnation in employment growth as companies focus on clearing up their balance sheets, rather than taking on new employees. Combined with decreasing household spending, this could be another attack upon the strength of the recovery.

Government may yet be called upon again to further fill that spending gap.

Now see SocGen’s guide to the worst case scenario >

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