In 2009, economists said the worst recession since the Great Depression had ended. However, the recovery has proved to be slow and uncertain as well. Look at employment growth, economic output, bank lending, and home prices- the economy is recovering at a shockingly slow rate. Many economists argue that the top three reasons for this delayed resurgence are household debt, a financial system still damaged by the mortgage crisis, and low levels of consumer confidence.
Despite the bleak outlook, there are bright spots. Exports are trending upwards largely as a result of high demand from developing countries. The Institute of Supply Management reported an uptick in manufacturing for the month of June.
But we need to look at the deeper issues surrounding the United States economy. Banks are less willing to loan than before the recession, and rightfully so. Home equity lines of credit and available funds have plummeted. The Federal Reserve has lowered short-term interest rates to near zero, which should in theory cause banks to start lending money more liberally, but this has not been the case. On the other hand, fiscal stimulus via government spending is not a wise option because the national debt is higher than at any other point in U.S. history.
Household indebtedness presents another serious problem. At the peak of the economic boom in 2007, U.S. households collectively had borrowed the equivalent of 127% of their annual incomes to fund purchases of homes, cars, and other consumer goods.
This is the same recovery that was aided by the largest Keynesian-style stimulus package since World War II. Since 2008, the federal government has spend $4.6 trillion on stimulus deals. A large Keynesian stimulus and a slow economic recovery are probably related and interdependent.
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