Morgan Stanley: Americans are getting rid of debt, and the market is gonna crash if we don't get jobs

Morgan Stanley says that equity markets will keep falling if we don't get more job growth.  This is the first time in recent memory where the people have been focusing on the dismal employment figures.

Everyone was excited that we averted another depression and instead only got a deep recession.  It looks like they may have been overly optimistic.  With the anti-growth stimulus bill and the fake (multipliers) which encourage spending and thus harm our economy.  Via Morgan Stanley:
If we don't get that jobs growth fairly soon, equity markets may keep falling. Consumers account for 70% of US GDP, so there will not be any sustained expansion without consumer spending. Despite a disappointing run of consumer data, our macro colleagues see enough positive signs elsewhere to think growth will be better in the second half, but if the consumer stays soft, markets will rightly worry that the recovery has not reached escape velocity.
Secondly, the American Consumer is deleveraging faster than expected.  Everybody knows that the reason why we got into this mess in the first place is because people got into too many debts that they couldn't pay off.  That led to too many people buying homes they couldn't afford, too many credit cards.  What we hear out of Washington is that we need to spend more money.  In fact, that was one of the reasons for the stimulus: people weren't spending enough so let Washington do it for you.  It was one of the reasons for indefinite extensions of unemployment benefits:  the multiplier effect is better than tax cuts.

The real Soviet tragedy of it all is none of it works.  5 year plans and government meddling into credit and mortgage markets won't work.  People intuititively know that they need to reduce their debt burdens, Geithner be damned.  When governments get involved it all goes wrong.  We have things like government subsidies of the mortgage market knowing that encouraging people to buy houses they can't afford started this whole game.  They have people out encouraging spending knowing that our debt burdens are too high already.

Morgan Stanley reports that Americans are getting rid of debt faster than anyone ever expected:
We have long agreed with the basic deleveraging story. But there is surprisingly good news: American consumers have deleveraged their balance sheets and rebuilt saving faster than expected. While debt-to-income ratios and other measures of leverage are still elevated, household debt service is lower and saving higher than expected in relation to income. We estimate that the deleveraging timetable is nearly a year ahead of schedule. Looking ahead, the recent plunge in mortgage rates likely will push debt service still lower. Consequently, in our view, the headwind to consumer spending from deleveraging is now a smaller risk to the outlook, as consumers can spend more of their income.


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