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Washington Post : There have always been Wall Street economists wanting to cheerlead the recovery, and quick to jump on any piece of news showing a great boom is around the corner," said Kenneth Rogoff, a Harvard economist. "The data so far are more consistent with a very moderate recovery."
There are a number of reasons that would be the case. American households are trying to reduce debt to stabilize finances. But they are doing so slowly, with total household debt at 94 percent of gross domestic product in the fourth quarter down just slightly from 96 percent when the recession began in late 2007.
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CR : This graph, based on the Federal Reserve Flow of Funds data, shows household debt as a percent of GDP through Q4 2009 (note : I removed a few non-profit categories).
Note that the household debt problem is mostly a mortgage debt problem. Mortgage debt as a percent of GDP started really picking up in 2001 and 2002 and continued to increase sharply through 2006.
There was also a sharp increase in mortgage debt in the late ’80s. That was partially associated with Tax Reform Act of 1986 that only allowed mortgage debt to be tax deductible, and excluded interest on all personal loans including credit card debt. There was also a smaller housing bubble in the late ’80s that was associated with the increase in mortgage debt.
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