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The conditions for a Sustainable U.S. Recovery: The Role of Investment

  • Philip Arestis

    (The Levy Economics Institute)

  • Elias Karakitsos

    (Trafalgar Asset Managers)

The anemic U.S. economic recovery and the threat of a double-dip recession stem from the weakness of investment, due to excess capacity created in the euphoric years of the "new economy" bubble. The current imbalances in the corporate sector (i.e., the all-time-high indebtedness in the face of falling asset prices) are preventing investment from picking up and are laying the foundation for a new, long-lasting expansion. Tax reductions may create a cyclical upturn in the short run and may promote the anemic recovery, but such stimulus to demand is unsustainable in the long run. The root of the problem is the imbalance in the corporate sector, which will take time for correction.

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Paper provided by EconWPA in its series General Economics and Teaching with number 0306001.

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Length: 52 pages
Date of creation: 05 Jun 2003
Date of revision:
Handle: RePEc:wpa:wuwpgt:0306001
Note: Type of Document - MS Word; prepared on PC; to print on HP/PostScript; pages: 52 ; figures: included
Contact details of provider: Web page: http://128.118.178.162

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  1. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  2. Mayer, Colin, 1994. "The Assessment: Money and Banking: Theory and Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 10(4), pages 1-13, Winter.
  3. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May.
  4. 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.
  5. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
  6. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  7. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
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