Notoriously bearish strategist Albert Edwards believes the UK is sitting on a ‘massive credit bubble that is primed to burst’ as another recession looms.
The Société Générale global strategist said the recent sharp decline in household saving ratios (SR) in the UK and the US was last seen in 2007 just before the global financial crisis.
This week, the US saw a substantial downward revision to its SR, with 1.5% lopped off the estimates taking the ratio to 3.8%, a level which Edwards claimed was last seen prior to the recession.
In the UK, household SR slumped in the first quarter of this year to 1.9%, which he said was ‘shockingly low’.
He said: ‘I’m genuinely getting tired of bashing the major central banks, but every day more evidence mounts that almost exactly the same debt excesses that caused the global financial crisis in 2008 are present today.
‘The UK Bank of England and US Federal Reserve deserve particular vilification for failing to remove the monetary punchbowl quickly enough just like the 2003-2007 period, allowing grotesque debt excesses to build.’
Edwards previously said he believed the US corporate sector ‘borrowing binge’ will take ‘centre stage in the next credit crisis’, but now thinks the household sector will play a bigger part thanks to the latest SR data.
Blaming the Fed, he said: ‘QE has not only inflated corporate debt to grotesque levels, but finally the US SR has responded to the surge in household paper wealth that QE has produced.
‘Typically the SR always declines with rising wealth. Why do you need to bother saving if interest rates are close to zero and house and stock prices are rising?’
Edwards also believes the Bank of England (BoE) should have normalised rates ‘long ago’ and thinks it is ‘100%’ the BoE’s ‘own responsibility’ if credit growth spirals out of control.
Comparing the UK to SR data from other European countries, Edwards said huge swings in the SR, representing credit booms and busts, are most apparent in the UK – ‘especially relative to the stability of somewhere like France.’
He added: ‘But the recent decline in the UK SR is almost without historical precedent. It is a credit disaster waiting to happen.’