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Shilling notes the economy increased its leverage for the past 30 years and that now the Street will consolidate as firms pay off debts and shrink balance sheets.
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Less debt is the answer, but shrinking balance sheets is hard.
He says there are other ways of shrinking the balance sheet, such as through higher retained earnings or shrinking balance sheets outside the UK.
That will encourage them to achieve the capital target by shrinking balance sheets, possibly leading to a credit crisis.
While the Royal Bank of Scotland and other banks that have been bailed out are shrinking balance sheets and making their way through asset impairments, Barclays had a good 2009.
Over the next year he predicts a continuation of shrinking balance sheets and elevated credit costs, but the outlook is not all doom and gloom.
That means shrinking balance sheets by writing down bad loans or selling them off and a more risk-averse business model that trades growth for security.
The news comes days after Japan's Softbank acquired a 14% stake in Uber, a move that helped the U.S.-based company shore up its shrinking balance sheet with fresh capital.
Some $15 trillion of financing capacity has been taken out as banks have shrunk balance-sheets and the "shadow" network of non-bank credit has crumbled, he estimates.
It is not just the declines in savings that people are feeling, reflected in the shrinking balances on quarterly banking statements now arriving in mailboxes.
Citi is close to completing its plan to shrink its balance sheet.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com