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Debt up. Debt down. Not the important question

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The IIF reported that global debt rose in dollar terms, but fell for the fourth consecutive quarter as a share of GDP (to 318%). The world is borrowing roughly three times its income. The debt level is not the important question. The important question is who you owe the money to. Debt is often an intergenerational wealth transfer. Time and inheritance "solves" that debt burden.
  • The US employment report is due. Average hourly earnings are not wages (which is why the number is not called "wages"). The US is at full employment. The labor market is too strong for negative real rates.
  • The Fed's Bullard suggested the link between employment and inflation was broken by credible central bank inflation targets. This suggests normal people care about inflation targets, know central banks have inflation targets, and know what a central bank does. Surveys suggest normal Americans know none of these things.
  • Eurozone consumer and producer price inflation data are due. Consumer prices should be close to their long-term average (1.6% headline rate). Producer prices should show corporate pricing power is quite strong. The UK BRC shop price index showed deflation again (last positive in early 2013). This may lower consumers' inflation perception.