The recession that began in the United States in December 2007 ended in June 2009. But the Great Recession is a near-worldwide phenomenon, with the consequences of which many advanced economies--among them Sweden--continue to struggle. Its depth and breadth appear to have changed the economic environment in many ways and to have left the road ahead unclear.
Today I will discuss three key aspects of the challenges policymakers face as they seek to move ahead. These are: (1) The impact of the Great Recession and the associated Global Financial Crisis on the growth of output, both in the short term and over the longer term. (2) The reform of the financial sector--in other words, how much progress have we made in creating a safer and more stable post-crisis financial environment? (3) The impact of the crisis on the conduct of monetary policy--in particular, how to balance the goals of achieving stable inflation and full employment while also taking into account the need to maintain financial stability. I will leave it to others to address the important challenges facing fiscal policymakers as they determine the appropriate roles and paths for fiscal policy at both the macro- and micro-levels.
To keep the focus sharp, I will deal primarily with the economy of the United States. But policymakers around the world confront related challenges and I will draw also on the post-crisis experiences of other economies. And I should make it clear that my comments today are mine alone and do not necessarily represent the views of other members of the Board of Governors of the Federal Reserve System or the Federal Open Market Committee.1
Americans are making progress in working down their heavy debt burden, but are struggling to break out of another funk holding back the economy: their deep pessimism.
Some economists point to a big drop in household debt as a sign that American consumers - once considered the driving force of the world economy - are primed to return to more spendthrift ways.
But standing in the way of a stronger recovery, and possibly President Barack Obama's re-election as well, are unprecedented levels of concern that better days may not lie ahead.
Research suggests that economic growth will suffer from a sinking feeling among consumers that their incomes will continue to lose ground to inflation. Even though households are digging themselves out of debt, the painful 2007-2009 recession could leave a lasting scar on their willingness to spend.
"Given people's expectations, the outlook going forward does not suggest much upside for consumption," said Jeff Greenberg, an economist at Nomura in New York. "A lot of people will be radically different consumers."
Polls show record levels of pessimism about future income despite slow improvements in the economy. Indeed, Gallup surveys have found Americans are even gloomier about their finances now than they were during the recession's darkest days.
| One group has been especially vocal about shaping a new narrative of the credit crisis and economic collapse: those whose bad judgment and failed philosophy helped cause the crisis. Rather than admit the error of their ways — Repent! — these people are engaged in an active campaign to rewrite history. A Big Lie is so colossal that no one would believe that someone could have the impudence to distort the truth so infamously. There are many examples: Claims that Earth is not warming, or that evolution is not the best thesis we have for how humans developed. Those opposed to stimulus spending have gone so far as to claim that the infrastructure of the United States is just fine, Grade A (not D, as the we discussed last month), and needs little repair. Wall Street has its own version: Its Big Lie is that banks and investment houses are merely victims of the crash. You see, the entire boom and bust was caused by misguided government policies. It was not irresponsible lending or derivative or excess leverage or misguided compensation packages, but rather long-standing housing policies that were at fault. |
