CNBC aired an excellent interview with First Niagra Bank’s CEO, John Koelmel. Koelmel did a fantastic job of summarizing the problems of a balance sheet recession. He described consumers as “backing up”, “anxious”, and “anything but confident”. He says borrowers are “hunkering down”. He reiterates comments that Maria Bartiromo had made just moments before the interview aired – that consumers appear to have pulled in the purse strings in September. When asked for his outlook on the economy he said:
“This time last year we were all hoping we’d be better positioned to see some good pop in the economy, are sector in general, but we’re at least a year away. I’d be surprised, pleasantly so, if we chat this time next year and are encouraged going into (2012). It’s definitely going to be a tough road to hoe and the headwinds are blowing and continuing to do so.”
This is a classic balance sheet recession response. There is a lack of borrowers due to excess debt and therefore the economy remains stagnant as consumers pay down debt, tighten their purse strings and remain generally cautious.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.