Financial sector debt (and as noted consumer debt) has fallen significantly since the crisis:
Yet, if we look at the financial sector assets with respect to non financial sector credit market debt, we start to see an interesting picture:
While the financial sector assets to GDP ratio has risen strongly, we find that the overall relationship between financial sector assets (assets to GDP ratio red line) and non financial sector credit market debt (debt to GDP ratio, green line), as seen in the purple line (above and below) is still visually under stress.
Indeed the relationship between financial sector assets and economy wide debt can be assessed to have become under increasing stress during the latter part of the 1990s, which contrasts with the belief by some that the debt bubble is only a post 2000 “thing”. The asset to debt cycle peaked in 1999/2000.
It is difficult to believe that we are anywhere near through an economy wide balance sheet recession:
Worryingly, this relationship shows strain despite the significant QE induced rise in asset prices, suggesting that again, the balance sheet recession is only being stayed by central bank asset price stimulus. Also cause for concern is the increasingly disparate relationship between the value of assets and real economic growth within the context of increasing income inequalities. What I mean is that the value of assets must ultimately relate to the expenditure growth of the economy, and any significant and prolonged divergence from economic fundamentals is a risk to overall financial balance sheet.
The growth in loans and leases (FRB H8) has also barely recovered post the 2007/2009 crisis and annual growth is currently on a weakening trend: