A different economic growth strategy for the U.S.

De Koning, Kees (2020): A different economic growth strategy for the U.S.

Abstract

The corona virus pandemic has dramatically changed the economic outlook for the United States and many other countries.

In June this year, the Federal Reserve published its unemployment predictions. From a July 2020 level of 10.2%, it expects the year-end ratio to drop to 9.3%; by the end of 2022 to reach 5.5% and ultimately to return to the pre-corona crisis level of 4.1% at a later date.

The adjustment period during the previous financial crisis took from December 2006, when the U.S unemployment level reached a low of 4.4%, to April 2017 when it, for the first time since December 2006, reached a level of 4.4% again: more than 10 years of adjustments. In October 2009, it reached 10.0% as the highest level during the previous financial crisis. Households also lost $6 trillion in home equity between Q2 2006 and Q1 2012.

If the past can be any guidance for the future, the current unemployment projections may seem somewhat optimistic.

Higher unemployment levels go hand in hand with reduced incomes; dropping house prices as foreclosures and evictions become the standard practice to affect households.

Governments -the U.S. government included- have a tendency to (have to) spend more in recession periods when tax incomes drop and borrowings rise. The last year a surplus was recorded on the U.S. Federal government account was in 2000. Since then the cumulative deficit has grown into a debt to GDP level of 107% of GDP. The expected deficit for this fiscal year 2020 is $3.7 trillion. Any debt in excess of over 85% of GDP lowers future growth patterns.

U.S. Government debt levels are based on the premise of borrowing first and repaying later. No savings are set-aside in good years to spend in recession years. Therefore interest and principal repayments need to take place in later years, reducing the government’s disposable income for other purposes. Households mostly save first and spend at a later date. In 2019, U.S. households pension savings reached $32.3 trillion and home equity net worth in privately owned homes was $ 19.565 trillion. The U.S. nominal GDP in the same year was $21.43 trillion.

The key to turn an economy around in the fastest possible manner is to use household’s existing savings first, before resorting to borrowings: A Temporary (home) Equity Spend and Save Again system (Tessa) will be set out in this paper.

• Item Type: MPRA Paper
• English Title: A different economic growth strategy foe the U.S.
• Language: English
• Keywords: U.S. economic growth, unemployment, financial crisis. household losses in home equity, savings and spending levels government and households, U.s. government debt to GDP level. the use of home equity to create economic growth.
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

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