Big Picture: Household Cash vs. Debt

From the Big Picture post:

That highly graphic graphic comes to us from the excellent Stephanie Pomboy and her irreverent and invariably informative (block those alliterations!) MacroMavens commentary. As she observes, "For all the bragging about the $6 trillion in cash households have sitting on their balance sheets, relative to household debt, this cash cushion is at a record low!"

More disturbing still, Stephanie goes on, is that the households with the cash (and assets) "are not the ones with the debt." Rather, alas, the top 1% of householders hold 30% of the assets and 7% of the debt, while the bottom 50% hold a mere 6% of assets but a burdensome 24% of the debt.

What Stephanie envisions is that just as "the story in 2005-2006 was the cash buildup on corporate balance sheets," the story for 2007-2008 might very conceivably be "a similar increase in saving by households, as they endeavor to repair the damage inflicted by the burst of the housing bubble."

What might this mean? The precise timing is difficult to ascertain -- but if the "great mass of consumers finally takes a deep breath and cuts back on their profligate spending," it would not be a particularly positive event for the economy or corporate earnings. And corporate earnings in Q4, we learn this morning, look like they have finally broken their streak of double digits gains.

For the rest of Barry Ritholtz's post, click on the title.