Washington Post, August 17, 2009 on page A4:
"A bigger problem looms outside of banks - in credit markets, which account for vast chunks of mortgage lending, consumer loans and commercial real estate loans.
Credit fuels housing. It fuels consumer durable goods. It fuels business investment. It's in every part of the economy. said Reinhart, an economist at the University of Maryland."
Comment: Such is a kind of multiplier effect to some degrees.
"Currently, Americans are saving more and paying down debt; the savings rate was 1.2% of disposable income in early 2008. By the second quarter of this year, that rose to 5.2%. "
Comment: Americans have adjusted lifestyle of consumption to a certain extent.
It is predicted the crisis and recession have caused savings to go much higher and that is going to slow growth of consumption even once incomes start growing. According to McKinsey Global Institute: When the savings rate goes up by a percentage point, spending decreases by more than $100 billion.
Comment: Such reduction of spending would invariably lead to lower GDP.
Michael Mussa, a fellow at the Peter G. Peterson Institute for International Economics said:"Deep recession are followed by steep recoveries and economic forecasts almost never take account of this regularity.
"he honest truth is there is incredible uncertainty in the forecast right now, " said Gertler of New York University. "Recessions are periods where the negative surprises outweigh the positive surprises. We're overdue for some more positive surprises now."
Professor John K. Galbraith published "The Age of Uncertainty" decades ago and I have cited his insights in my blogs many times.
Francis Shieh a.k.a. Xie Shihao who believes that material success is worth working but there is no need to sacrifice the truly important, enriching and soul-satisfying part of intellectual life.
Life is a pursuit of economic philosophy as I have had such thoughts for decades.
Monday, August 17, 2009 at 7.32 p.m.
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