Why This Recovery Seems So Painful
When policymakers consider their options in trying to ramp up economic growth and, in turn, bringing down unemployment, the forces of nature -- or, at least, economics -- seem conspired against them. They might as well try to outlaw bad weather. The fundamental problem with the Great Recession and the following anemic recovery is that this period is different from what we've experienced since World War II. The primary factor is the role of credit. Leverage, as it is known, can work both ways: It can either magnify economic growth on the way up or magnify contraction on the way down.
You've probably already heard that recessions associated with excess leverage and ensuing credit busts are often worse than are more "normal" recessions, and that the former enjoy less robust recoveries than do the latter. However, there is another factor to consider. Regarding the strong economic expansions to which we've become accustomed, the reason for such recoveries has been the rapid growth of credit that began several decades ago. In other words, we're using the wrong benchmark in comparing ourselves with where we should be. So not only is the U.S. recovery weaker than average, but we'd become accustomed to economic growth that had been above average. That has made this recovery seem especially painful....681 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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