Tuesday, January 5, 2010
U.S. Growth Prospects Deemed Bleak In New Decade
Speaking at American Economic association mammoth yearly gathering, from a range of political leanings were in surprising agreement when it came to the chances for a robust and sustained expansion. "They Are Slim". Many predicted that the U.S. gross domestic product would expand less than two percent over the next ten years. That stands in sharp contrast to the immediate aftermath of other economic downturns, which has usually elicited a growth surge in their wake. It will be difficult to have a robust recovery while the housing and commercial real estate are depressed, "said Martin Feldlstein, a Harvard University Professor and former head of the National Bureau Of Economics. Housing was at the heart of the nation worst recession since the 1930's, with median home values falling over 30 percent from their 2005 peaks, and even more sharply in heavily affected states like California and Nevada. The decline has sapped a principal source of wealth for U.S. consumers, whose spending is a key driver of the country's growth pattern. The steep drop in home prices has also bolstered their propensity to save. It is very hard to see what will replace it,"said John Stiglitz. Nobel Laureate and professor of economics at Columbia University. "It's going to take a number of years." One reason U.S. consumers remain heavily indebted. Consumer credit outstanding has fallen from it's mid-2008 records, but still stands at some 2.5 trillion, or nearly one-fifth of the total yearly spending in the U.S. economy. Another is that many country's largest banks are still largely dependent on funding from the Federal Reserve and the implicit backing of the Treasury Department. Kenneth Rogoff, also of Harvard, argued that the U.S. government ever "credibly" pulled away from it's backing of the financial system, then a renewed collapse would likely ensue. He cited government programs giving large financial institutions access to zero-cost borrowing as artificially padding their bottom lines. "There is something of an illusion of profitability, "he said.