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.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: U.S. financial crisis; Tessa system; QE and QT; U.S. home equity levels; U.S. unemployment levels; Corona virus pandemic; shorten the economic downturn
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics; D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory; 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 > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; 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 > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

References

Federal Reserve Bank of St. Louis; Households, Owner’s Equity in Real Estate, Level; various years; https://fred.stlouisfed.org/series/OEHRENWBSHNO

Federal Reserve Bank of St. Louis; Median Sales Price of Houses Sold for the United States; https://fred.stlouisfed.org/series/MSPUS

Federal Reserve Bank of St. Louis; Households and Non Profit Organizations; One to Four Family Residential Mortgages; Liabilities; Level; https://fred.stlouisfed.org/series/HHMSDODNS

Federal Reserve Bank of St. Louis; Gross Domestic Product; Seasonally Adjusted Annual Rate; https://fred.stlouisfed.org/series/GDP/

Board of Governors of the Federal Reserve System, Washington D.C.; Credit and Liquidity Programs and the Balance Sheet; https://fred.stlouisfed.org/series/GDP/

Board of Governors of the Federal Reserve System, Washington D.C.; Publications: 2019 Report on Economic Wellbeing U.S. Households https://www.federalreserve.gov/publications/files/2019-report-economic-well-being-us-households-202005.pdf?wpisrc=nl_daily202

De Koning, Kees; 7 May 2020; Tessa: A new economic tool; A Temporary Equity Spend and Save Again system; RePEc:pra:mprapa:100182 Tessa a new economic tool; a Temporary Equity Spend and Save Again system

U.S. Census Bureau; Maryland, U.S; U.S Median Household Income 2018-2019; https://www.census.gov/library/stories/2019/09/us-median-household-income-up-in-2018-from-2017.html