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Cracks in the Foundations of Growth: What Will the Housing Debacle Mean for the U.S. Economy?

  • Dimitri B. Papadimitriou
  • Greg Hannsgen
  • Gennaro Zezza

With economic growth having cooled to 0.7 percent in the first quarter of 2007, the economy can ill afford a slump in consumption by the American household. But it now appears that the household sector could finally give in to the pressures of rising gasoline prices, a weakening home market, and a large debt burden. The signals are still mixed; for example, while April’s retail sales numbers caused concern, May’s were much improved, and so was the ISM manufacturing index for June. Consumption growth indicates a slowdown. This Public Policy Brief examines the American household and its economic fortunes, concentrating on how falling home prices might hamper economic growth, generate social dislocations, and possibly lead to a full-blown financial crisis.

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Paper provided by Levy Economics Institute in its series Economics Public Policy Brief Archive with number ppb_90.

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Date of creation: Jul 2007
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Handle: RePEc:lev:levppb:ppb_90
Contact details of provider: Web page: http://www.levyinstitute.org

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  1. Edward Chilcote, 2006. "Credit Derivatives and Financial Fragility," Economics Policy Note Archive 06-1, Levy Economics Institute.
  2. Janine Aron & John Muellbauer, 2006. "Housing Wealth, Credit Conditions and Consumption," Economics Series Working Papers WPS/2006-08, University of Oxford, Department of Economics.
  3. Alan Greenspan & James Kennedy, 2008. "Sources and uses of equity extracted from homes," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 120-144, spring.
  4. Kristopher Gerardi & Harvey S. Rosen & Paul Willen, 2007. "Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market," Working Papers 61, Princeton University, Department of Economics, Center for Economic Policy Studies..
  5. Dimitri B. Papadimitriou & Gennaro Zezza & Greg Hannsgen, 2006. "Can Global Imbalances Continue?: Policies for the U.S. Economy," Economics Strategic Analysis Archive sa_nov_06, Levy Economics Institute.
  6. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
  7. L. Randall Wray, 1998. "Modern Money," Economics Working Paper Archive wp_252, Levy Economics Institute.
  8. Dimitri B. Papadimitriou & L. Randall Wray, . "Does Social Security Need Saving? Providing for Retirees throughout the Twenty-first Century," Economics Public Policy Brief Archive ppb_55, Levy Economics Institute.
  9. Randall S. Kroszner, 2007. "Recent innovations in credit markets: a speech to the 2007 Credit Markets Symposium at the Charlotte Branch of the Federal Reserve Bank of Richmond, Charlotte, North Carolina, March 22, 2007," Speech 270, Board of Governors of the Federal Reserve System (U.S.).
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