Meanwhile, private spending grew 3.9 year on year in 2013, the strongest rate in a decade, and the outlook for 2014 is promising. Improving household balance sheets imply stronger consumer sentiment.

In short, as Greenspan departs, he leaves behind an American economy burdened with high household and government debt and fragile balance sheets a legacy that is already contributing to global financial instability.

Will the recovery continue at its frustratingly slow pace? Or will it accelerate as the housing sector rebounds, bank lending expands, household balance sheets improve, and state and local government budgets strengthen?

The headwinds buffeting the US recovery impaired household balance sheets, a depressed housing market, and government spending and employment cuts are dissipating. Household debt has fallen to levels last seen in the early 1990 s, real household net worth has returned to its pre recession peak, and residential investment as a share of GDP is rising.

But the country is relatively wealthy, especially in terms of property assets on household balance sheets. So higher taxes on property and lower taxes on income would contribute to the creation of a more dynamic, competitive economy.

The rarely admitted truth, however, is that there is no need for central banks balance sheets to shrink. They could stay permanently larger and, for some countries, permanently bigger central bank balance sheets will help reduce public debt burdens.

Economic performance in the United States and the United Kingdom holds an important lesson for the eurozone. Both economies recoveries have been driven largely by a pickup in consumption on the back of stronger household balance sheets, especially in the US.

In 2008, it was a combination of exploding asset prices and excessive household sector leverage that fueled the global financial crisis. When such a debt fueled bubble bursts, its effects are transmitted directly to the real economy via household sector balance sheets, with the reduction in consumption contributing to a decline in employment and private investment.

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That is why the completion of the ECB s comprehensive assessment of banks balance sheets and the start of Europe wide banking supervision will help revitalize sluggish lending in the euro area. In particular, increased clarity and transparency about banks balance sheets, together with a better capitalized banking sector, will create a more supportive lending environment.

The crisis struck domestic demand, and the tradable sector was incapacitated, because the rapid rise in relative unit labor costs, combined with an over valued euro, had undermined competitiveness. Moreover, the crisis related damage to banks balance sheets constrained demand by severely limiting household credit and lending to small and medium size businesses.

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Those conduits are now showing gigantic losses that have to be covered by the parent banks, some of which are being driven to the brink of bankruptcy. This spring will show the necessary write offs in the annual balance sheets, but the full truth will not become known before the 2008 balance sheets are published in the spring of 2009.

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I've written two and three times a day telling you. Sheets and sheets.

Freddy Hill writes me twice and three times a day. Sheets and sheets.

There is a trade off between competition and stability. Indeed, greater competitive pressure may increase the fragility of banks balance sheets and make investors more prone to panics.

Trapped in a post crisis quagmire of zero interest rates and swollen balance sheets, the world s major central banks do not have an effective strategy for regaining control over financial markets or the real economies that they are supposed to manage. Policy levers both benchmark interest rates and central banks balance sheets remain at their emergency settings, even though the emergency ended long ago.

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