Why is this recession different from all those other recessions?
One of the answers: Consumer credit is really damaged, and it hasn’t bounced back the way it did in the past four recessions. The primary cause of the financial crisis — the mortgage meltdown — has continued to depress household borrowing and spending. And that’s a leading concern of some Treasury Department officials I met with today. “It’s weakened the link between interest rates and the recovery,” one Treasury official said. “It reflects the nature of the crisis: the higher debt in the mortgage market.”
Here’s one chart they passed out, with the dark blue line at the bottom showing the current state of affairs:
(SOURCE: TREASURY DEPARTMENT)
Drilling down a bit deeper: Is consumer credit still sagging because banks are unwilling to lend to households still saddled with toxic debt? Or because consumer confidence is still low, and once-bitten, twice-shy households are afraid to spend and borrow? According to this Treasury official, it’s a bit of both. To that end, an effective housing fix would help on the debt side. But on the demand side, there isn’t much the White House can do to encourage consumer spending without Congress’s help.
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