Tags: Economists | US | Cushions | volatility

Economists: US Losing its Cushions From Volatility

Monday, 01 Aug 2011 08:51 AM

For decades, the U.S. economy went through gentle ups and downs as part of its natural economic and business cycles. Today, the country is in for more violent swings, because the things that cushioned the economy from volatility in the past — lower consumer debt and government tools — are gone, economists say.

Consumers are carrying too much debt and have too little savings, so when the economy cools, spending gets slashed, which jolts a downturn even more.

Thus household confidence erodes even further than in the past, and the cycle gets worse.

On top of that, the government has less power to prop up the economy via interest-rate cuts, tax breaks or stimulus measures, all tools that won't spark demand among consumers who won't — or can't — spend like they did in the past.

"In this recession and its aftermath, those smoothing mechanisms, those shock absorbers, clearly have been damaged," says Harvard economist James Stock, the Wall Street Journal reports.

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Less consumer demand means less business and subsequently, less economic growth.

"We were anticipating that 2011 was going to be a fairly decent year," says Robert Olson, chairman of Winnebago Industries, the recreational-vehicle maker, the Journal adds.

"We hit February and it really felt like people flicked a light switch."

The U.S. economy grew by 1.3 percent in the second quarter, below a 1.8 percent growth rate expected by private economists, according to the Commerce Department.

"It is now clear: the economy is even less sturdy than we thought just one day ago," says Richard DeKaser, economist at the Parthenon Group, a Boston-based consulting company, according to the Christian Science Monitor.

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For decades, the U.S. economy went through gentle ups and downs as part of its natural economic and business cycles. Today, the country is in for more violent swings, because the things that cushioned the economy from volatility in the past lower consumer debt and...
Economists,US,Cushions,volatility
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2011-51-01
Monday, 01 Aug 2011 08:51 AM
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