By 2015 the U.S. GDP will have shrunk by $1 trillion from the moment Lehman Brothers collapsed in 2008. The U.S. Federal Reserve spent billions in stimulus to try and prop up what it could after the collapse and yet despite this, the country’s output is about 6 percent below where it should be. Home prices are about 30 percent below where they were at the peak of the housing boom, unemployment standing at 8.1 percent is almost double what it was before the recession, and the country’s national debt is about 73 percent of GDP and growing. One U.S. professor from Wake Forest University paints an even grimmer outlook; “If we don’t significantly change direction, the U.S. goes bankrupt in 20, 25 years.”
Carney and others in attendance in Calgary pointed out that traditional economic slumps rebound quickly, using the initial shock of 9/11 that gradually turned around as an example. This time though that rebound hasn’t happened and nothing seems to be working to change that. The reason says Carney is just as the numbers say; debt.
Americans took on so much debt before the collapse they can’t pay it off; the housing market is still struggling, the U.S. government is paralyzed locked in a battle between stimulation and tax cuts, while the private sector troubled by these numbers refuses to make the investments necessary to put people to work until it sees what they call ‘a return to normal.’
However many analysts warn this is the new normal. C.D. Howe Institute economist John Curtis says the world counted on a number of in sync factors to fuel growth before Lehman collapsed; the U.S. housing boom, Europe creating the Euro, and the growth of China and other emerging markets to be export buyers. And almost like dominos they have all come down with the U.S. and Europe struggling to hang on while China is seeing its once rapid growth slowing down too.
The Bank of Canada has lowered its estimate in world GDP growth in the wake of this U.S. news since America accounts for 20 percent of the global economy. For Canada being America’s biggest trading partner, these numbers will continue to drag the States down inevitably hurting Canada too. Recovery is not an easy thing and if $1 trillion loss is anything to go by, things will get a lot darker before the dawn.