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Knuthsen: Why the US recovery bashers are wrong

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How optimistic should investors be about the US economy? Recent data has certainly pointed towards recovery. While many are still wary about America’s economic future, Saxo’s Teis Knuthsen believes things are looking up.

Knuthsen points to Monday’s Federal Reserve’s quarterly survey (The Senior Loan Officer Survey). It showed a continuing easing of credit conditions, including corporate and institutional as well as mortgage loans.

Demand for credit has also risen as has household debt. Debt ratios peaked in 2007 and although they fell over the following five years they’ve been increasing over the past 12 months. Mortgage debt is also rising again as well as student and car loans.

Knuthsen says debt deleveraging, which slowed down the US economy, has come to an end. He says once debt ratios begin to rise again, and people start spending, growth will pick up further. Rising employment is also helping.

But Teis Knuthsen says the main barrier in the US is the Federal Reserve which he says is “substantially behind the curve”. He says it needs to begin to raise interest rates and reign in liquidity. If that doesn’t happen he warns it could lead to rising inflation.