Green shoots have turned out to be yellow weeds.  The SF Fed has an excellent new piece of research summarizing just how extraordinarily odd this recession has been.  In a rather succinct piece, they show just how below trend the “recovery” has been and just how damaging it has been to the US household:

“In the mid-2000s, an enormous speculative housing bubble emerged in the United States. An accommodative interest rate environment, lax lending standards, ineffective mortgage regulation, and unchecked growth of loan securitization all fueled an overexpansion of consumer borrowing. An influx of new and often unsophisticated homebuyers with access to easy credit helped bid up house prices to unprecedented levels relative to rents or disposable income. Equity extracted from rapidly appreciating home values provided households with hundreds of billions of dollars per year in spendable cash, significantly boosting consumer spending. The consumption binge was accompanied by a rapid increase in household debt relative to income and a decline in the personal saving rate (see Lansing 2005).

The persistent rise in home values encouraged lenders to ease credit even further on the assumption that house price appreciation would continue. But when these optimistic projections failed to materialize, the bubble began to deflate, setting off a chain of events that led to a financial and economic crisis. The “Great Recession,” which started in December 2007 and ended in June 2009, was the most severe economic contraction since 1947 as measured by the peak-to-trough decline in real GDP.

The Great Recession triggered a dramatic shift in household spending behavior. Real personal consumption expenditures trended down for six quarters, the personal saving rate more than tripled from around 2% to over 6%, and households began a sustained deleveraging process that is still under way (see Glick and Lansing 2009).

This Economic Letter estimates the amount of consumption lost from the Great Recession by comparing the actual trajectory of real personal consumption expenditures to its pre-recession trend. The amount turns out to be quite large. From December 2007 through May 2011, foregone consumption per person was over $7,300, or about $175 per person per month.”

(Real personal consumption expenditures per person)

(Real household net worth per person)

(Personal consumption expenditures)

(Employment to population ratio)


Source: SF Fed


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Octavio Richetta

    These guys are great historians, but always behind the curve. There were people who were writing about this as it was unfolding while these guys were asleep at the wheel. Now that the bubble has burst and several years have passed, they come out with a nice summary of what transpired, AND still do not learn from there mistakes they keep on inflating bubbles and ignoring regulation. It is a pity there is no grade lower than an F as that is the one they would deserve.

  • jt26

    This is a pretty illustration, along with the savings rate data, that the *unproductive* 2004+ boom has dropped us in a mean balance sheet recession, as TPC describes.

  • Brian

    It would seem we are not going to have a robust US economy until we begin another housing bubble. Consider the number of jobs, the equity, and the disposable income created by a strong housing market. The ability to create high amounts of demand for new and existing housing has been stifled by new regulation as well as a new more conservative household spending attitude. If housing is not “allowed” to begin a new bubble cycle. What then? I suppose we muddle along with very slow growth, if any.

  • Different Chris

    Currently looking at a Ron Paul add directly to the right of the beginning of this post, something about a debt ceiling betrayal…. Perplexing.

  • El Viejo


    “Ever learning, but never coming to a ‘saving’ knowledge…”

  • Different Chris

    “This Economic Letter estimates the amount of consumption lost from the Great Recession by comparing the actual trajectory of real personal consumption expenditures to its pre-recession trend.”

    Wouldn’t a better, or perhaps only interesting, comparison be to the pre-credit bubble average instead of the pre-recession trend because the pre-recession trend will inherently include the credit bubble?

    Just a thought.

  • Ryan

    While this recession has certainly been different than previous ones, I would not consider it “odd.” In fact, I think this is pretty much exactly the type of recovery we should have expected. Monetary and fiscal authorities have pulled out all stops to prevent the economy from contracting at its more “natural” rate. I don’t blame them for trying to prevent a massive contraction, but the consequence is that we will be experiencing a much longer period of sub-par growth. People either need to accept this or be willing to face the alternative of a more substantial retrenchment.

  • Will

    Could you respond to!/Fullcarry He was in Barrons as one of the best people to follow and recently posted on MMT and mentions he “leans” towards it despite not being fully convinced. Perhaps you could get involved in this conversation.

  • sizzler

    I agree with Octavio Richetta. What we are in the middle of has been shaping up for a decade and that we’d be here was obvious from 2003.
    There has been no strategic macro economic oversight worth the name, and the tactics have been unsuited for the economic reality.
    I don’t understand why Bernake is still in post. And it amazes me that Dr Doom was passed over for Treasury Secretary.

  • Different Chris

    Roubini as Tsy Sec.? I harbor no love for Geithner in the post, but Roubini doesn’t exactly have a stellar record when you compare his calls to what the market _actually_ does.

    Roubini is a fear salesman.

  • Somnolento


    We’re having a discussion here at work (yes, on MMT…at least there are green shoots here…), and a question came up: what is more destructive to economic growth, cutting spending or increasing taxes? Or, are do they have equivalent impact.


  • Somnolento

    That was sloppy, sorry. I meant to say “cutting Federal spending…”. And “Or, do they have an equivalent impact”. Thanks.

  • Cullen Roche

    It totally depends on the spending and tax increase. Is it productive to pay people to dig ditches in Alaska? More so than it is to reduce taxes for billionaires? Is it productive to cut spending on infrastructure? More so than it is to increase taxes on the middle class during a balance sheet recession?

  • Somnolento

    Fair enough. Next time, though, could you please frame your answers so that they fit neatly into people’s simplistic notions of how the world works? Thanks.

  • quark

    Whether it is the post 80’s government bailout of S&L’s ie convert private debt into public debt or the the post .com loose credit catalyst behind the private debt explosion, its all the same..inefficient use of DEBT that was used as a vehicle to fuel consumption and deceive the public into believing that corporations were being run efficiently by investing. Unfortunately we learned that that incompetent business leaders were giving themselves undeserved bonuses…sounds just like the reward system this country is now applying to the banksters.

    With all the postulation on how we can save our country from our past actions by moving assets and liabilities around as if the worlds balance sheet was governed by Enron accountants perhaps we need to determine how we reward government leaders and corporate executives vs teachers. Just maybe we should look beyond the near future.

    The reason this countries financial destiny is doomed to end in hell before we end back on earth (the central bankster now have us held in purgatory) is that we have over the past thirty odd years dummied ourselves down from being responsible stewards of capital.

  • Andrew P

    Most household wealth is in real estate values. That is a fact. If those values are still dropping, it is not possible for most households to have any collateral. We don’t need a new bubble, but we do need the RE market to clear and a true bottom to be found.

  • p e t

    news “West’s go’v’s cant pay prin, borrow to pay only int.
    U [ S. total pub pvt debt c$80t to $199t two hund tril (12 zero)
    13x gdp$14t/yr”