I came across this white paper from Wells Fargo and found it to be a unique perspective on the events of the last 10 years and think that it is an introspective analysis with potential to offer insights as to how the next five may unwind.
In it Dean Junkans, the CIO of Wells Fargo lays out an argument that corporate de-leveraging represents the first phase in the removal of excess liquidity, a process that began in the wake of the tech bubble collapse in 2000. He outlines how that process is nearly over just as consumers are in mid-stream of shoring up personal balance sheets in the wake of the real estate collapse of 2008/2009. He goes on to outline how the process will need to complete itself at the government level. Might the next major collapse in fact be a major sovereign default?
My immediate concern is that if corporations and individual balance sheets are going to become healthier through debt reduction and more constraint, then who is going to help global governments unload the massive amount of assets that have been ballooning sovereign balance sheets? Austerity plans are one thing, but no tolerable amount of austerity is going to rein in deficits that have ballooned to large fractions and even multiples of GDP.
If Bear Stearns is to Greece, then we may expect that Lehman will be to _________? (Italy, Japan, or the US? Which say ye?)
A Three Dimensional View
Dean Junkans, Wells Fargo, June 3, 2010