Friday, April 20, 2012

Economic Recovery: Recommended Reading

The Lehmann Letter (SM)

This letter recommends several articles in this morning's newspapers.

Both The New York Times and The Wall Street Journal carried stories about the weak economic recovery.

The New York Times also published a separate story on Europe's travails.

All of these focus on the weak recovery both here and abroad: Noting that signs of strong growth are often mitigated by setbacks.

But the most interesting story, from this letter's perspective, appeared in The New York Times and analyzed domestic household debt levels.

The article relied heavily on a recent report by the McKinsey institute that analyzed recent recoveries from debt crises. It was generally upbeat, but carried a warning in its closing paragraphs.

“Susan Lund, the director of research for the McKinsey institute, says the two areas where the United States is weakest are in coming up with a credible fiscal plan and in stabilizing the real estate market. Home prices continue to fall in some of the hardest hit areas, where debts continue to be high relative to income. ……

“Ms. Lund points out that from 2003 to 2007, American homeowners took out $2.2 trillion from home equity loans and mortgage refinancings, a source of economic stimulus that will not return anytime soon. “Compared to the much-debated government fiscal stimulus, this was more than twice the size,” she noted. She thinks the household deleveraging process will continue for two more years.”


It's housing and household balance sheets!

They are retarding recovery and they will take a long time to mend.

(To be fully informed visit

© 2012 Michael B. Lehmann

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