Posted by WARREN MOSLER on September 20th, 2012
The unemployment line is the evidence the federal deficit is too small given conditions.
This at least partially explains why the full employment deficit is much larger this time around:
From JP Morgan:
Households lost $16 trillion worth of wealth during the crisis from late 2007 to early 2009, but they have recovered 70% of the loss since then.
However, the recovery has been uneven across wealth groups. The wealth of the top 10% has fallen back to 2004 levels, but median wealth has fallen back to 1992 levels, in real terms.
As a result wealth inequality has increased sharply after the crisis, which may have some effect on the upcoming elections.
Across age groups, the 25- to 44-year old group has experienced the most significant wealth losses after the crisis. This has been primarily due to house price declines, as younger households are more leveraged in housing.
House prices are not expected to revert back to pre crisis levels in real terms for a very long time. If younger households decide to rebuild their lost housing wealth, this will have long term growth implications.
We estimate that the 25- to 44-year old group has lost $2 trillion housing wealth and rebuilding this lost wealth over 10 years implies that GDP growth will be 1.3 %-pt less than it otherwise would be.
This may explain the slow demand growth we have experienced following the crisis.