Monday, October 15, 2012

This recession has cost you $12,000 per year

Vicious circle?
Very interesting article which puts into numbers the cost of the financial meltdown and the recession:

In much of the industrial world, what started as a financial problem is becoming a structural one.

If growth in the US and Europe had been maintained at its average rate from 1990 to 2007, gross domestic product would have been between 10 and 15 per cent higher today and more than 15 per cent higher by 2015 on credible projections.

Of course, this calculation may be misleading because global GDP in 2007 was inflated by the same factors that created financial bubbles.

However, even if GDP was artificially inflated by 5 percentage points in 2007, output is still about $1tn short of what could have been expected in the US and EU.

This works out to more than $12,000 for the average family.

My guesstimate is that we will not fully recover to the older levels. Because the 2007 and
earlier GDPs were inflated by easy credit (allowing people to live today using hoped for earnings tomorrow), the return to 2007 levels depends on whether we revert to the older easy credit system.

If we don’t, then we have reached a lower plateau, and growth will be sustained but from this lower start.

The reductions in the economies of Spain, Italy and Greece are simply reflections of this stabilization at a lower (less-debt) plateau.

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