The world's dream: economic growth : the balance sheet approach

De Koning, Kees (2012): The world's dream: economic growth : the balance sheet approach.

Abstract

Economists may need to change their tools of analysis from analysing income and expenditure contributors (GDP) to asset value contributors -the net worth levels of individual households-. Assessment of the latter requires a balance sheet analysis. Why; because the level of individual households’ savings in the U.S currently stands at $62.7 trillion, GDP at $15.1 trillion and tax revenues at $2.4 trillion. Such U.S. analysis has to be made through the study of time series, not just for a single year. For instance the cause of the current crisis was the banker’s shift in action from recovering doubtful mortgage debts out of incomes to recovering them out of selling of home assets. This caused an extra supply of 880 000 second hand homes to come on the market every year from 2008. In stead of only affecting the 4.4 million doubtful debtors, it affected all 78.6 million home owners. Their loss was nearly equal to three years of U.S. Federal Government revenues. To counteract such savings losses requires adjustments in the U.S economic set up - the econsystem changes-. It also requires turning some assets -pension savings assets- temporarily into cash in order to support the income base of society in times of slow growth. Keeping unemployed people on the sideline of an economy is not the best way of earning one’s way out of income troubles.

• Item Type: MPRA Paper
• Language: English
• Keywords: balance sheet of households; net worth; financial crisis; economic growth; income to assets switch; economic easing; quantitative easing; Fannie Mae and Freddy Mac; bank restructuring; home mortgage process; fiscal cliff; econsystem
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; G - Financial Economics > G0 - General > G01 - Financial Crises; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets; G - Financial Economics > G2 - Financial Institutions and Services; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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