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I'm not sure how this is news. America was living above its means with a negative savings rate and then we had a massive recession when people ran out of money

I'm not sure how this is news. America was living above its means with a negative savings rate and then we had a massive recession when people ran out of money to borrow. Now a few years later people are working to get back to zero. When you're saddled with a pile of debt and not a lot of buyers, it takes a while to get everyone back to a sensible place. Now, if companies paid higher wages, it might accelerate the recovery certainly, but at the same time, people would likely just raise their standard of living, not necessarily pay off debt. What our society needs to fix the long term economy is for the average citizen to be in a strong enough financial position to pay their bills and have enough left over to save some money and spend a bit extra on entertainment, vacations, toys, etc. It's not about everyone being rich, if we are in a consumer based economy, we need people to be able to afford to buy things without causing financial ruin. It's not about bigger houses, more cars, etc. It's simply about being able to afford to buy things without going in to debt to do so.

gph1 14y ago
What's surprising is that mainstream/orthodox economists have not really veered from the neoclassical position that private debt levels are essentially irrelevant from a macro perspective, on the basis that someone's debt is another person's asset and therefore any accumulation of debt is offset by an equal accumulation of savings supplying that debt. But it's entirely obvious that the household debt overhang from the financial crisis is entirely what is holding demand/consumption back. We have had a historic buildup in HHold leverage for the last 30 years as consumers used debt as a substitute for stagnant wages, and after the housing crisis all this debt is no longer underpinned by adequate collateral. Head in the sand.
- dwd 14y ago
  Very true. The Keen-Minsky model is the only notable attempt to look at effects of private debt in an economy. http://www.debtdeflation.com/blogs/ http://www.debtdeflation.com/blogs/

gph1 14y ago

What's surprising is that mainstream/orthodox economists have not really veered from the neoclassical position that private debt levels are essentially irrelevant from a macro perspective, on the basis that someone's debt is another person's asset and therefore any accumulation of debt is offset by an equal accumulation of savings supplying that debt. But it's entirely obvious that the household debt overhang from the financial crisis is entirely what is holding demand/consumption back. We have had a historic buildup in HHold leverage for the last 30 years as consumers used debt as a substitute for stagnant wages, and after the housing crisis all this debt is no longer underpinned by adequate collateral. Head in the sand.

dwd 14y ago
Very true. The Keen-Minsky model is the only notable attempt to look at effects of private debt in an economy. http://www.debtdeflation.com/blogs/ http://www.debtdeflation.com/blogs/