What prospects for balance sheet adjustments?

- "The deterioration in the balance sheet situation of households as well as companies is the principal cause of the crisis. As long as the balance sheet adjustments (rebalancing of debts and assets) are not over, we cannot hope for a return to normal in the economies."
- "We look at the state of the balance sheets and to what extent they have been adjusted in the United States, the euro zone and the United Kingdom."
- "The correction in excess debt relative to assets can be done either passively via a fall in real interest rates or via a rise in asset prices, or actively via a rise in savings used to deleverage and rebuild wealth, and by a decline in investment."
- "We can see that the balance sheet adjustment is mainly carried out via a rise in savings and a fall in investment in all countries. It is only in the United Kingdom that real interest rates are low."
- "This adjustment is therefore costly in terms of growth, and also slow (2 - 3 years or even more in the euro zone)."

Natixis Flash Economics 433 20100902

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