Cost of the Great Recession

Our conservative estimate is $50,000 to $120,000 for every U.S. household
– Federal Reserve Bank of Dallas (FRBD), September 2013

The totals are in. The FRBD tallied up and quantified the overall financial cost of the Great Recession. They redefined it a “financial crisis”.

The FRBD published their analysis this month in a fascinating report with a dry title:
Assessing the Cost and Consequences of the 2007-09 Financial Crisis and its Aftermath

Summarizing their sobering discoveries:

  • $50,000-$120,000 lost per household
  • 12% loss of output per person
  • $12-$13 trillion in “extraordinary” government support
  • $11.7 trillion in lost output
  • 11.5 million unemployed as of July 2013
  • 10.6 million underemployed
  • Up to one GDP growth year of lost production
  • One to two GDP growth years of lost consumption
  • An added GDP growth year lost to “national trauma” and “opportunity”
  • The path of future output may be permanently lower than before

The wide range of FRBD estimates depends on how long it will take to get to full recovery. If long, then the higher estimates are right.

Worse news is that the GDP growth curve looks like it has been permanently reset lower.

The worst news of all is it looks like the slope of the growth curve is less than before the crisis.

If that is the case, and according to the FRBD it looks like it is, then all the costs of the financial crisis will be higher than their highest estimates!!!

That defines a “financial crisis” of epic proportions. It’s no wonder we haven’t recovered.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Sep 11, 2013, in Business, Debt crisis, economics, Economy, Government, Jobs, Life, news, Politics, The Fed. Bookmark the permalink. 5 Comments.

  1. “That defines a “financial crisis” of epic proportions. It’s no wonder we haven’t recovered.”

    I guess you don’t attribute any contribution to the size of this epic financial criss to counter-productive fiscal and monetary responses of our governemnt and the Federal Reserve?

    • If I were to have commented on fiscal and Fed contributions I would have said something like this…

      Fed management of TARP and monetary policy since the beginning of the crisis saved the U.S. economy from falling into a full-fledged depression.

      Government fiscal policy (outside TARP) did little or nothing to help and, if anything, Congressional mismanaged funds have slowed the recovery.

      The crisis itself was primarily made possible because of two main federal government policies:
      1-Repeal of parts of the 1933 Glass-Steagall Act in 1999
      2-Specific Federal policy to expand home ownership from 60% to 70%

      Both policies were initiated in the 1990s during the Clinton Administration

  2. @AZ
    I can see how one could argue that TARP put us in “recovery” by June of 2009. But, ZIRP and QE have done nothing, in my opinion, to help create jobs and have done much to help rich Wall Street investors get richer. Iceland to the opposite approach (putting some bankers in jail) and they have been doing fine for several years now. Just saying…

    • I agree that recent Fed action hasn’t worked as advertised for stimulating economic growth, but has worked perfectly for keeping inflation at or below the targeted 2% level.

      One peek at the 10-year treasury yield curve since 2006 shows that.

      The Fed is definitely manipulating monetary policy… no doubt… and there is real danger that it might not work… but that is what it is supposed to be doing in support of the dual mandate.

      The Fed are the good guys. Congress and the President are the bad guys! 😉

  3. I suspect that the science of economics has been destroyed like the “hard sciences”:

    For the past sixty-eight years – since Hiroshima was vaporized, the Second World War ended, and the United Nations (2013 – 1945 = 68 yrs) formed – the very best universities and research institutions have accepted public funds to generate fabulous false fables to keep the public from knowing the truth:

    1. Neutrons repel, rather than attract, other neutrons
    2. Stars make and discard, rather than burn, Hydrogen
    3. The Sun made our elements, birthed the Solar System
    4. Its pulsar core: The Creator, Destroyer & Sustainer of Life

    See messages sent to the Space Science & Technology Committee
    United States House of Representatives: http://omanuel.wordpress.com/

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