The Balance Sheet

George Will summarizes the state of the post-recession economy:

June begins the sixth year of the anemic recovery from the 18-month recession. Even if what Obama’s administration calls “historically severe” weather — a.k.a., winter — reduced GDP growth by up to 1.4 percentage points, growth of 1.5 percent would still be grotesque.

[…]

The more than $1.1 trillion of student loan debt — the fastest-growing debt category, larger than credit card or auto loan debt — is restraining consumption, as is the retirement of baby boomers. In 2012, more than 70 percent of college graduates had student loan debts averaging about $30,000. This commencement season’s diploma recipients are entering an economy where more than 40 percent of recent college graduates are either unemployed or in jobs that do not require a college degree. This is understandable, given that 44 percent of the job growth since the recession ended has been in food services, retail clerking or other low-wage jobs.

In April, the number of people younger than 25 in the workforce declined by 484,000. Unsurprisingly, almost one in three (31 percent) people age 18 to 34 are living with their parents, including 25 percent who have jobs.

So the rate of household formation has, Neil Irwin reports in the New York Times, slowed from a yearly average of 1.35 million in 2001-06 to 569,000 in 2007-13. And investment in residential property is at the lowest level (as a share of the economy) since World War II. “If,” Irwin writes, “building activity returned merely to its postwar average proportion of the economy, growth would jump this year to a booming, 1990s-like level of 4 percent.”

The obvious retort to this is that the 2007-2009 recession was a balance sheet recession and that may well be.

The recession ended five years ago. Over that period what specific actions has the administration taken to address the balance sheet problem? As I see it the administration has responded as though it were an ordinary cyclic recession with pseudo-Keynesian pump-priming.

11 comments… add one

  • CStanley

    What are the policies that can correct a balance sheet recession?

  • I’ve written about that extensively in the past. Let me give you an example: debt forgiveness.

  • ...

    Mostly they’ve encouraged people to take on more debt, while working their assets off the help out the Soros’s and Buffett’s of the world to get healthy.

  • ...

    Just making student loan debt dischargable in bankruptcy would help.

  • ...

    And now we know the economy actually shrank in Q1. But don’t worry, that’s only because winter unexpectedly hit in winter.

    Using the Admin’s adjustment above, we would have actually grown at a 0.4% clip (annualized) otherwise. Which is horrible. Buet otherwise totally B-fucking-PLUS!

  • Guarneri

    “And now we know the economy actually shrank in Q1. But don’t worry, that’s only because winter unexpectedly hit in winter.”

    Global warming. The cause of the poor economy has officially shifted from GWB to the Koch Bros. Just ask Nancy and Harry, shilling for Bammy.

    Anyway. In the fall Mr. Reynolds was soiling himself over GDP numbers. I pointed out that it was largely inventory build which would have to reverse itself in the absence of sell through or a permanently higher desired level of inventory. Well…….a big part of the current revision is inventory reduction. We are where we’ve been for years – slogging along at a suboptimal and historically low clip. However, just as the GDP was artificially high late last year, its artificially low now. My crystal ball says we are still in a 1-2% growth mode. I’d be watching two things. First, ObamaCare premiums and underlying health care expenditures are syphoning spending power disproportionately into that sector. Bad news if you own a restaurant. Second, the positive, but sluggish, consumer spending number is being propped up by borrowing – balance sheet recession or not. How long until that runs its course?

    We don’t have good fundamentals. This administration is doing nothing but recommending digging holes in the ground and filling them up………………after it takes 12 months to get your shovel permit, environmental impact statement….

  • Well…….a big part of the current revision is inventory reduction.

    Guarneri has it right. BI declined by a whopping 12% annualized in the first quarter and much of that was a decline in inventories.

    Something to think about is that as the economy operates now reduction is divided between a reduction in domestic business purchases and imports. Imports less petroleum are just about on the floor right now.

    In other words, our economy isn’t exactly suffering a heart attack right now but the Chinese economy is.

  • ...

    I noted the inventory bit when I glanced at the article and thought of Drew. Yeah, those will probably balance somewhat, but I also seem to recall that consumer debt is climbing again, and that isn’t sustainable.

    Regardless, these numbers, even smoothed out, still leave millions out of work and are unlikely to reverse the disgusting trend on median income.

  • ...

    And I saw a report a day or two ago stating that housing sales in the bottom 99% were down substantially. Just glanced at the report so I don’t know how credible it was, but if everything but the tip top of the housing market is declining, that bodes ill.

  • Guarneri

    “….I also seem to recall that consumer debt is climbing again, and that isn’t sustainable.”

    “Regardless, these numbers, even smoothed out, still leave millions out of work and are unlikely to reverse the disgusting trend on median income.”

    ” but if everything but the tip top of the housing market is declining, that bodes ill.”

    All true. This economy and its stewardship are just a joke. Whether a classic business cycle or balance sheet recession you do what you need to do to address it. Not just political pandering. Obama is all politics all the time, whether by design or ignorance.

    I’m just trying to be intellectually honest about today’s reported number. The left should try it sometime.

  • Guarneri

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