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Flow of Funds Figures Show the Largest Drop in Household Borrowing in the Last 40 Years

  • Gennaro Zezza

The Federal Reserve's latest Flow of Funds figures reveal that household borrowing has fallen sharply lower, bringing about a reversal of the upward trend in household debt. According to the Levy Institute's macro model, a fall in borrowing has an immediate effect--accounting in this case for most of the 3 percent drop in private expenditure that occurred in the third quarter of 2008--as well as delayed effects; as a result, the decline in real GDP and accompanying rise in unemployment may be substantial in coming quarters. For further details on the Macro-Modeling Team's latest projections, see the December 2008 Strategic Analysis Prospects for the U.S. and the World: A Crisis That Conventional Remedies Cannot Resolve.

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Paper provided by Levy Economics Institute in its series Economics Strategic Analysis Archive with number sa_jan_09.

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Date of creation: Dec 2008
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Handle: RePEc:lev:levysa:sa_jan_09
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