The Government told us that the Great Recession ended in 2009, but why does it still feel like we're in one? That's because we are actually still in a recession, silly! Well, according to economist Richard Koo of Nomura Research Institute:
This kind of recession Koo is talking about is not a technical recession. After all, the economy is technically growing -- slowly, imperceptibly, like the turning of the earth. But upon closer inspection, we're in a shadow recession he and other economists call a "balance sheet recession." That means that just about everybody in the Western World -- households, corporations, and sometimes even governments -- is focused on paying off our balance sheets (i.e.: paying off debt) at the same time. That's nice for our balance sheets. But it's a horrible way to jumpstart a weak economy.
Koo does the yeoman's work of drawing the picture of balance sheets in the United States and some major European economies. The jagged lines are a bit of an eyesore, but they tell a simple story. Between the IT Bubble and the Housing Bubble that book-ended the 2000s, households (in red), corporations (in blue) or both borrowed lots of money, year after year. Then the recession hit, and our incomes fell, and we started running surpluses by saving more of our money.
Derek Thompson of The Atlantic boils it down for us: Link | Or read Richard's full paper [PDF]