Munich Personal RePEc Archive

The unique benefits of a Tessa system: the U.S. case

De Koning, Kees (2020): The unique benefits of a Tessa system: the U.S. case.

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In the U.S., the previous financial crisis of 2008 can be interpreted in two ways. The first one is that economic growth –defined as two consecutive quarters of expanding GDP- was achieved in Q3 and Q4 in 2009. However, the second one -households’ equity in their homes- showed that the households’ financial crisis lasted from Q3 2006 to Q2 2016. The net worth level –the owners’ equity in their homes- reached a peak in Q3 2006 with a level of $14.260 trillion. Between Q3 2006 and Q1 2012 households lost collectively $6.048 trillion in net worth savings; a savings loss of 42.4%. It took to Q2 2016 before this loss was overcome and the homeowners’ net worth had returned to $14.392 trillion. The latest data show a further savings level increase to $18.715 trillion as per the end of Q4 2019.

The unemployment levels in the U.S. show a similar pattern as the home net worth picture. In October 2006 the unemployment level measured 6.727 million unemployed persons. By October 2009 15.352 million persons were unemployed. It took to September 2017 to return to 6.841 million unemployed persons.

The savings losses and gains made -reflected in the collective households’ net worth in homes- show that overcoming a financial crisis is not a short term but a much longer-term process. The same applies to the rise and falls in unemployment levels.

Perhaps the conclusion may be drawn from these data that the financial health of households is closely related to the savings embedded in their homes, as well as to being employed or unemployed. Economic growth levels do not reflect such variations properly.

With the latest corona virus pandemic, unemployment levels have gone through the roof. The latest data show that there were more than 40 million applicants for unemployment benefits in the U.S. over the last ten weeks. 21 million actually received benefits.

The main economic objective is to shorten the downturn. The adjustment period could be shortened by making it possible for households to have access to some of their equity embedded in their homes. The quicker such system can be implemented, the shorter the recession period will be. In a previous paper the author has already explained how a Tessa system- a Temporary Spend and Save Again system- can be applied. This paper will develop the concept further.

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