Slow Learning Curve In Washington
Posted By thestatedtruth.com on July 31, 2011
Slow learners……we’re talking about the government of course! They want banks to loan out more and consumer borrowing to pick up. They still don’t get it!
Household debt levels are at 112% of annual income which is considered too high. To get back to a 1990’s debt-to-income ratio’s of 84%, incomes would need to be nearly $4 trillion higher. This would take about nine years worth of income growth, according to Credit Suisse estimates.
Incomes are shrinking as shown in the chart below.
The U.S. economy has been expanding slowly for two years now, and economists had been expecting it to pick up steam in the second half as robust overseas demand and investment at home by cash-rich companies spured consumers to spend, even as they reduce their debt burdens. But Friday’s GDP report and the impact of Washington’s debt-ceiling stalemate on consumer and business confidence as well as on financial markets are raising doubts about that outlook.
It could be years before Americans feel that they’ve pared enough debt to start spending readily. Household debt levels are at 112% of annual income which is considered high. To get back to a 1990s debt-to-income ratio of 84%, incomes would need to be nearly $4 trillion higher. This would take about nine years worth of income growth, according to Credit Suisse estimates.
Robert Hall, a Stanford University professor, says that three-quarters of households don’t have two months worth of income socked away as cash or other liquid assets. Further more Federal Reserve researcher Karen Pence says that 41% of households can borrow less than $3,000 on their credit cards and 23% have been turned down or discouraged from applying for credit.
Meantime, the government’s ability to serve as a shock absorber is for the most part gone. In 2003, when the economic recovery stumbled, the Bush administration pushed through tax cuts to get cash into the hands of households and the Fed pushed down interest rates to ease borrowing. In 2008 and 2009, the Obama administration and the Fed did it again, boosting federal spending in an $800-billion stimulus and cutting interest rates to near zero.
Now, with deficits sky high, the federal government is moving toward cutting spending. The Fed’s hands are now tied, as they can’t cut short-term rates below zero and are reluctant to pursue another round of buying mortgages and Treasury securities. That’s because the last effort to push down long-term interest rates and stimulate growth had only marginal success.
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