Buy now, pay later? It’s later.

Buy now, pay later was the mantra of U.S. consumers during a debt-fueled binge earlier this decade.

Banc of America Securities-Merrill Lynch economists think getting U.S. household debt-to-income back to the long-term trend will require eliminating $1.75 trillion in debt, assuming no change in disposable income. That will probably take years.

And that’s their more conservative forecast, just taking the ratio from its current level of 131 percent down to 115 percent. To get back to the average seen in the 1990s, $4.35 trillion in debt would have to be eliminated. 

 ”Either way you look at it, U.S.  households will remain mired in a period of balance sheet repair,” the economists wrote in a note to clients. “And, the continued debt elimination necessary to reach a more sustainable household balance sheet means that the ability of the U.S. consumer to lead the recovery on a sustained basis will be limited. This is why we do not expect the consumer to lead the economy out of the recession. This is also one of the risks to the view that th U.S. economy is on the verge of a V-shaped recovery.”

Earnings and V-shape recovery

It may be some weeks since investors have written off the prospect of a V-shaped economic recovery, but equity analysts still expect corporate earnings to go through a very sharp V-shaped rebound.

According to Thomson Reuters data, earnings are expected to shrink 34.5 percent in Q2 and 21.4 percent in Q3, before growing a whopping 180.2 percent in Q4.

That would bring the full-year 2008 earnings contraction rate to just 11.2 percent.