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How Long Can the U.S. Consumers Carry the Economy on Their Shoulders?

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  • Philip Arestis
  • Elias Karakitsos

Abstract

The consumer has been on a tightrope since the bursting of the "new economy" bubble, as losses in equity markets have been partly offset by gains in real estate and fiscal support and mortgage refinancing have partly offset increased consumer cautiousness. The consumer will remain on a tightrope in the near future, but if the economy were to stumble, the fragile consumer might contribute to turning the downturn into a deep and protracted recession. There are two risks to the continuation of consumer resilience. The first arises from the fact that this has been a jobless recovery. The second arises from a growing personal sector imbalance that is fueled by the growing property bubble. Hence, the short-term outlook remains uncertain, but the long-term one is bleak.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_380.

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Date of creation: May 2003
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Handle: RePEc:lev:wrkpap:wp_380

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  1. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
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  13. Wynne Godley, 1996. "Money, Finance and National Income Determination: An Integrated Approach," Economics Working Paper Archive wp_167, Levy Economics Institute.
  14. P. Arestis & E. Karakitsos, 2003. "How Far Can U.S. Equity Prices Fall Under Asset and Debt Deflation," Economics Working Paper Archive wp_368, Levy Economics Institute.
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