The wealth recession

Everyone who looks at the economy is trying to decide why it’s still sluggish and has not responded to the stimulus that the federal government provided. Is there an easy answer? N.C. State University economist Mike Walden shares his opinion.

“I think the answer, essentially, is this has been a different kind of recession (from) a normal recession when we have a recovery, business optimism revives, assets increase in value. And we have seen, for example, the stock market, which is a key asset, go up. It’s not totally recovered what was lost during the recession, but it has come back by about 85 percent.

“Yet the other major asset, real estate, has not come back. And in the typical recovery, it does. In fact, real estate is still a drag on the economy. Households collectively, or homeowners, have lost $7 trillion in their real estate wealth. And many economists think this is translating into sluggish growth and spending as households try to adjust their asset wealth ratios due to the fact that their assets are down.

“They’re going to have to pay down on debt, save more money, be more frugal spenders. And some economists say that the real reason why our traditional stimulus programs haven’t worked is because this is a different kind of recession. If we really want to address this recession, we have to have policies that do something about real estate debt and or real estate assets.”

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2 responses on “The wealth recession

  1. gym trainer says:

    yes, it seems that we haven’t seen such recession in the history 🙁 I’ll be thankful to hear the author of they post his or her opinion about the question: Is inequality a necessary side-effect of growth, or a disease that ultimately reduces growth?


  2. Mike Walden says:

    Excellent question. Read some of the articles and books by Robert Frank at Cornell University on this matter. He believes income inequality has contributed to too much borrowing by middle and lower income households which, in turn, contributed to the depth of the recession. Other economists (as you might expect) disagree. But your question is very thought provoking.

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