There has been a lot of debate around the causes of the slow economic recovery in the US. Some have argued that the loss of housing wealth affected consumption, and others have put the blame on debt leverage. They argue that deleveraging amplified the wealth effect. This graph shows that employment growth has been slowest in counties with higher levels of debt to income. In other words, we have a balance sheet recession. It is more important for policy to focus on debt reduction than on reflating housing prices. The administration is coming around to this view and may begin to attack the recession differently.
Saturday, February 25, 2012
This Is What A Balance Sheet Recession Looks Like
There has been a lot of debate around the causes of the slow economic recovery in the US. Some have argued that the loss of housing wealth affected consumption, and others have put the blame on debt leverage. They argue that deleveraging amplified the wealth effect. This graph shows that employment growth has been slowest in counties with higher levels of debt to income. In other words, we have a balance sheet recession. It is more important for policy to focus on debt reduction than on reflating housing prices. The administration is coming around to this view and may begin to attack the recession differently.
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