Thursday, September 15, 2011

US Economy Goes From Bad to Worse: Economist

Patrick Allen

The US economy is going from bad to worse and will not fully recover until structural problems caused by the collapse of the housing market and the financial crisis are resolved, according to Capital Economics. Predicting growth rates of 1.5 percent in 2012 and 2.0 percent in 2013, Roger Bootle, the managing director of Capital Economics believes there is a risk of the US economy falling back into recession over the next few years. “Households have made only limited progress in reducing their debt burdens following the collapse of the housing bubble,” said Bootle in a research note on Wednesday. “As the deleveraging continues, we expect spending to remain unusually weak over the next couple of years,” he said.

“What has been dubbed Operation Twist might succeed in reducing lowering 10-year Treasury yields a little, but we doubt it will have any impact on the wider economy because the cost of borrowing isn't the problem,” he added. “Households aren't in a position to borrow more or even refinance their mortgages to take advantage of these lower rates. Similarly, businesses don't have the confidence to invest regardless of how cheap the funds are,” said Bootle.

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