According to Brett Gallagher, deputy chief investment officer at Artio Global Management, LLC, the U.S. consumer still has a long way to fall – after nine months of debt reduction, US consumers have only managed to shave down their collective consumer debt from 97% of the GDP to 95%. So huge is the debt load that they’ll need to save 8% of their income for six years just to get down to the 1999 level of 65% (still a record high). According to Gallagher, policymakers are on the wrong track – trying to stimulate the economy by getting already over-leveraged consumers to spend even more money on things like cars that only dug the hole deeper. As he puts it,“Once Washington runs out of ways to encourage some to spend others’ money, the damage will need to be paid for. The result of the eventual de-leveraging will most likely be below trend economic growth in countries where consumers have over-extended themselves.”
Read more here: Artio CIO Letter