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Financial crises related to balance sheet problems in banks take years to resolve, and now we start to realize that. The liquidity run we experienced in 2009 is now far behind us. The rollercoaster is rocking the markets, from the ghosts of sovereign default to foreclosures, the impulse response has a very long tail.
Banks' balance sheets have still not recovered. Banks are still being seized, with more than one hundred banks seized in the US for 2010 alone. Even sovereign balance sheets are looking very bad, and we are not running out of surprises. 2011 and 2012 will be a bad year for Greece, we haven't seen anything yet.
Intel has had a good first quarter in 2010, but that was probably just restocking. The sales are expected to fall sharply for the second half of 2010. This means that consumers are not spending. They are not spending because they want to deleverage and repay their loans. Unfortunately, massive deleveraging encourages deflation, hence the debt burden increases instead.
Why? Because wages decrease while the debt burden remains the same. The latest news was that US call centers are now competing with Indian call centers, don't tell wages did not fall to get to that. If your wage falls by 10% but your debt does not, well, you have spend less.
And with 70% of the GDP in the US coming from consumption, I don't think we will see a rebound any time soon
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tycho