Good news, only 7 more years of a lousy economy ahead for us

[franzia99]

http://www.project-syndicate.org/commentary/shiller73/E...

According to the Reinharts’ paper, when compared to the decade that precedes financial crises like the one that started three years ago, “GDP growth and housing prices are significantly lower and unemployment higher” in the subsequent “ten-year window.” Thus, one might infer that we face another seven years or so of bad times.

But now the Reinharts and Rogoff have systematically studied many more examples in modern financial history. There is also the world financial crisis that attended the oil shocks of 1973 and 1979, and there are the country-specific financial crises in Spain in 1977, Chile in 1981, Norway in 1987, Finland and Sweden in 1991, Mexico in 1994, Indonesia, Korea, Malaysia, the Philippines, and Thailand in 1997, Colombia in 1998, and Argentina and Turkey in 2001.

So, there are many more than just two modern cases (though they are not all entirely independent, because they are somewhat bunched in time). From them, the Reinharts and Rogoff found, for example, that median annual growth rates of real per capita GDP for advanced countries were one percentage point lower in the decade following a crisis, while median unemployment rates were five percentage points higher.

How did this happen? They note that, in general, debt levels and leverage rose during the decade preceding these crises, propelling increases in asset prices for a long time. Reinhart and Rogoff describe a “this time is different syndrome” during the pre-crisis boom, whereby these bubbles are allowed to continue for far too long, because people think that past episodes are irrelevant.

[Sherman A1]

1. Interesting

Thanks for posting!

[LandR]

2. unfortunately realistic

Even though the US economy may recover slightly faster from a recession compared to other countries, which means maybe not quite ten years, many economists would agree the US economy will remain somewhat lackluster for at least another 4 years. One key indicator for this is the shadow housing inventory, which consists of distressed mortgages. Of the entire mortgage market, about one third of all mortgages are in the shadow inventory, which means there are still hundreds of billions worth of homes in the market with the inevitable fate of repossession. As a result, a continual flood of homes will result with an even worse oversupply of homes than we now have, thereby driving down property values even further and causing more people to go underwater who eventually may have to foreclose as well. Though this is only the housing market, let's not get started on the emerging lack of domestic labor, the aging population, or the clear trend of inflation. So it goes.

[franzia99]

3. Don't forget student loan debt, which is about to hit $ 1 trillion. Combined with the lousy job

market it's completely toxic. Many of these people won't be buying anything or stimulating the economy for a long time.

[Spinny Liberal]

4. Alright. Who broke the mirror? eom

[Javaman]

5. Whew!

enjoy it while you can.

Lousy is the new great.

In seven years, there will be another repuke in office.

These are the salad days.