Some Facts & Thoughts On US Household Deleveraging

The economists at Societe Generale are addressing some of my recent questions. Click on charts to enlarge, courtesy of Societe Generale.

Depending on economic religion, one should consider what the rise in interest rates mean for economy.

It is not like consumer is giving up its spending habits completely, just the weakest are dropping off the wagon of lust.

Well, but the final thoughts by economists at Societe Generale are opening my wide shut eyes:

While the savings rate is still below long-term equilibrium and will eventually have to rise toward 7%, there are many ways of getting there: lower consumption, higher income, lower effective tax rates or lower interest payments. In a best-case scenario, we will get there via income growth, which would allow consumption to grow modestly at the same time (with income being subsidized by exports). This scenario is implicitly embedded in the current consensus thinking, and fully supported by current policy efforts.

Income growth, which would allow consumption to grow modestly is a consensus thinking? Fully supported by current policy efforts ...