Economic Recovery: Sustaining U.S. Economic
Growth in a Post-Crisis Economy
Craig K. Elwell
Specialist in Macroeconomic Policy
December 2, 2010
Congressional Research Service
7-5700
www.crs.gov
R41332
CRS Report for Congress
P
repared for Members and Committees of Congress
Economic Recovery: Sustaining U.S. Economic Growth in a Post-Crisis Economy
Summary
The 2007-2009 recession was long and deep, and according to several indicators was the most
severe economic contraction since the 1930s (but still much less severe than the Great
Depression). The slowdown of economic activity was moderate through the first half of 2008, but
at that point the weakening economy was overtaken by a major financial crisis that would
exacerbate the economic weakness and accelerate the decline.
Evidence suggests that the process of economic recovery began in mid-2009. Real gross domestic
product (GDP) has been on a positive track since then. The stock market has recovered from its
lows, and employment has increased moderately. On the other hand, significant economic
weakness remains evident, particularly in the labor and housing markets.
In the typical post-war business cycle, lower than normal growth during the recession is quickly
followed by a recovery period with above normal growth. This above normal growth serves to
speed up the reentry of the unemployed to the workforce. Once the economy reaches potential
output (and full employment), growth returns to its normal growth path where the pace of
aggregate spending advances in step with the pace of aggregate supply.
There is concern that this time the U.S. economy will either not return to its pre-recession growth
path but perhaps remain permanently below it, or return to the pre-crisis path but at a slower than
normal pace. Problems on the supply side and the demand side of the economy may lead to a
weaker than normal recovery.
If the pace of private spending proves insufficient to assure a sustained recovery, would further
stimulus by monetary and fiscal policy be warranted? One of the important lessons from the
Great Depression is to guard against a too hasty withdrawal of fiscal and monetary stimulus in an
economy recovering from a deep decline. The removal of fiscal and monetary stimulus in 1937 is
thought to have stopped a recovery and caused a slump that did not end until WWII.
Opponents of further stimulus maintain that the accumulation of additional government debt
would lower future economic growth, but supporters argue that additional stimulus is the
appropriate near-term policy.
In regard to the long-term debt problem, it is true that for an economy operating close to potential
output, government borrowing to finance budget deficits will in theory draw down the pool of
national saving, crowding out private capital investment and slowing long-term growth. However,
the U.S. economy is currently operating well short of capacity and the risk of such crowding out
occurring and damaging future economic growth seems low.
Once the cyclical problem of weak demand is solved and the economy has returned to a normal
growth path, mainstream economists’ consensus policy response for an economy with a looming
debt crisis is fiscal consolidation—cutting deficits. Such a policy would have the benefits of low
and stable interest rates, a less fragile financial system, improved investment prospects, and
possibly faster long-term growth.
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Economic Recovery: Sustaining U.S. Economic Growth in a Post-Crisis Economy
Contents
Background ................................................................................................................................ 1
Severity of the 2008-2009 Recession..................................................................................... 1
Policy Responses to the Financial Crisis and Recession......................................................... 2
Monetary Policy Actions ................................................................................................. 2
Fiscal Policy Actions....................................................................................................... 2
Is Sustained Economic Recovery Underway? .............................................................................. 3
The Shape Of Economic Recovery.............................................................................................. 4
Demand Side Problems? ....................................................................................................... 5
Consumption Spending ................................................................................................... 5
Investment Spending....................................................................................................... 7
Net Exports..................................................................................................................... 8
Supply Side Problems? ....................................................................................................... 11
Policy Responses to Increase the Pace of Economic Recovery............................................. 13
The Case for More Fiscal Stimulus................................................................................ 13
The Case Against More Fiscal Stimulus ........................................................................ 14
The Case Against More Monetary Stimulus................................................................... 16
Economic Projections.......................................................................................................... 17
Contacts
Author Contact Information ...................................................................................................... 18
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Economic Recovery: Sustaining U.S. Economic Growth in a Post-Crisis Economy
Background
Severity of the 2008-2009 Recession
The 2007-2009 recession was long and deep, and according to several indicators was the most
severe economic contraction since the 1930s (but still much less severe than the Great
Depression). The slowdown of economic activity was moderate through the first half of 2008, but
at that point the weakening economy was overtaken by a major financial crisis that would
exacerbate the economic weakness and accelerate the decline.1
When the fall of economic activity finally bottomed out in the second half of 2009, real gross
domestic product (GDP) had contracted by nearly 4.0%, or by about $500 billion.2 The decline in
economic activity was much sharper than in the two most recent recessions, in 2001 and 1990
respectively. The most recent recession of similar severity was in 1973 in which real GDP fell
about 3.2%. (However, the recent decline falls well short of the experience during the Great
Depression when real GDP decreased by 30%).3
As output decreased the unemployment rate increased, rising from 4.6% in 2007 to a peak of
10.1% in October 2009, and remaining only slightly below that high into 2010. The U.S.
unemployment rate has not been at this level since 1982, when in the aftermath of the 1981
recession it reached 10.8%, the highest rate of the post-war period. (During the Great Depression,
the unemployment rate reached 25%). This recent rise in the unemployment rate translates to
about 7 million persons put out of work. Another 8.5 million workers have been pushed
involuntarily into part-time employment.4
The recession was intertwined with a major financial crisis that exacerbated the negative effects
on the economy. Falling stock and house prices led to a large decline in household wealth (net
worth), which plummeted by over $10 trillion or nearly 16% during 2008 and 2009. In addition,
the financial panic led to an explosion of risk premiums (i.e., compensation to investors for
accepting extra risk over relatively risk-free investments such as U.S. Treasury securities) that
froze the flow of credit to the economy, crimping credit supported spending by consumers such as
for automobiles, as well as business spending on new plant and equipment.5
The negative shocks the economy received in 2008 and 2009 were, arguably, more severe than
what occurred in 1929. However, unlike in 1929, the severe negative impulses did not turn a
recession into a depression, arguably because timely and sizable policy responses by the
government helped to support aggregate spending and stabilize the financial system.6 That
1 See CRS Report R40007, Financial Market Turmoil and U.S. Macroeconomic Performance, by Craig K. Elwell.
2 Real GDP is the output of goods and services produced in the United States.
3 Data on GDP is available from the Department of Commerce, Bureau of Economic Analysis, http://www.bea.gov/
national/index.htm#gdp.
4 Data on unemployment and employment available from the Department of Labor, Bureau of Labor Statistics,
http://www.bls.gov/.
5 Data on wealth and financial flows available at the Board of Governors of the Federal Reserve System,
http://www.federalreserve.gov/releases/z1/Current/.
6 See IMF, World Economic Outlook, October 2009, Chapter 2, http://www.imf.org/external/pubs/ft/weo/2009/02/pdf/
c2.pdf.
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stimulative economic policies would have this beneficial effect on a collapsing economy is
consistent with standard macroeconomic theory, but without the counterfactual of the economy’s
path in the absence of these policies, it is difficult to establish with precision how effective these
policies were.
Policy Responses to the Financial Crisis and Recession
Both monetary and fiscal policies as well as some extraordinary measures were applied to counter
the economic decline. This policy response is thought to have forestalled a more severe economic
contraction, helping to turn the economy into the incipient economic recovery by mid-2009. The
policies already put in place are likely to continue stimulating economic activity into 2011.
Monetary Policy Actions
To bolster the liquidity of the financial system and stimulate the economy, during 2008 and 2009
the Federal Reserve (Fed) aggressively applied conventional monetary stimulus by lowering the
federal funds rate to near zero and boldly expanding its “lender of last resort” role, creating new
lending programs to better channel needed liquidity to the financial system and induce greater
confidence among lenders. Following the worsening of the financial crisis in September 2008, the
Fed grew its balance sheet by lending to the financial system. Between September and November
2008, the Fed’s balance sheet more than doubled, increasing from under $1 trillion to over $2
trillion.
By the beginning of 2009, demand for loans from the Fed was falling as financial conditions
normalized. Had the Fed done nothing to offset the fall in lending, the balance sheet would have
shrunk by a commensurate amount, and the stimulus that it had added to the economy would have
been withdrawn. In the spring of 2009, the Fed judged that the economy, which remained in a
recession, still needed stimulus. On March 18, 2009, the Fed announced a commitment to
purchase $300 billion of Treasury securities, $200 billion of Agency debt (later revised to $175
billion), and $1.25 trillion of Agency mortgage-backed securities. The Fed’s planned purchases of
Treasury securities were completed by the fall of 2009 and planned Agency purchases were
completed by the spring of 2010. At this point, the Fed’s balance sheet stood at just above $2
trillion.7
Fiscal Policy Actions
Congress and the Bush Administration enacted the Economic Stimulus Act of 2008 (P.L. 110-
185).This act was a $120 billion package that provided tax rebates to households and accelerated
depreciation rules for business. Congress and the Obama Administration passed the American
Recovery and Reinvestment Act of 2009 (P.L. 111-5). This was a $787 billion package with $286
billion of tax cuts and $501 billion of spending increases that is projected to add fiscal stimulus
equivalent to about 2% of GDP in 2009 and 2.5% of GDP in 2010.8
7 For further discussion of Fed actions in this period, see CRS Report RL34427, Financial Turmoil: Federal Reserve
Policy Responses, by Marc Labonte.
8 See CRS Report R40104, Economic Stimulus: Issues and Policies, by Jane G. Gravelle, Thomas L. Hungerford, and
Marc Labonte.
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In terms of extraordinary measures, Congress and the Bush Administration passed the Emergency
Economic Stabilization Act of 2008 (P.L. 110-343), creating the Troubled Asset Relief Program
(TARP). TARP authorized the Treasury to use up to $700 billion to directly bolster the capital
position of banks or to remove troubled assets from bank balance sheets.
Congress was an active participant in the emergence of these policy responses and has an ongoing
interest in macroeconomic conditions. Current macroeconomic concerns include whether the
economy is in a sustainable recovery, rapidly reducing unemployment, speeding a return to
normal output and employment growth, and addressing government’s long-term debt problem.
Is Sustained Economic Recovery Underway?
Recent evidence suggests that the process of economic recovery is occurring. However, the pace
of growth is slow, much of that growth is currently sustained by transitory factors, and growth has
recently shown signs of decelerating.
• The economy began to recover in mid-2009. Real GDP (i.e., GDP adjusted for
inflation) increased at an annualized rate of 2.2% and 5.6% in the third and fourth
quarters of 2009; and 3.7%, 1.7%, and 2.5% in the first, second, and third
quarters of 2010. Much of this upward momentum has been sustained by the
transitory factors of inventory increases and fiscal stimulus. Of concern,
however, is that in the second and third quarter of 2010, growth has slowed to
around a 2% annual rate, a pace that may not be fast enough to keep the
unemployment rate from rising. Moreover, without the temporary contributions
of inventory adjustments and federal stimulus spending, the real economy grew
only 0.5% in the third quarter of 2010. On the positive side, during 2010 the rate
of consumer spending (representing nearly 70% of GDP) has increased
moderately and exports have continued to grow.9
• Manufacturing activity is increasing. By October 2010, output had increased
6.1% over a year earlier and capacity utilization has risen from a low of 65% in
mid-2009 to nearly 74%.10
• Since mid-2009 employment has increased, but the gains have been modest.
• The stock market has rebounded and interest rate spreads on corporate bonds
have narrowed. The DowJones stock index had plunged to near 6500 in March
2009 but has risen substantially since then. Spreads on investment grade
corporate bonds, a measure of the lenders’ perception of risk and credit
worthiness of borrowers, have fallen from a high of 600 basis points in December
2008 to less than 100 basis points by mid-2010.11
• China and Asia’s other emerging economies are having strong recoveries and the
large advanced economies of Germany, France, and Japan have recently recorded
9 Department of Commerce, Bureau of Economic Analysis, http://www.bea.gov/national/index.htm#gdp.
10 Board of Governors of the Federal Reserve System, Statistical Release G.17, http://www.federalreserve.gov/releases/
g17/.
11 Data on spreads found at http://www.bloomberg.com/apps/quote?ticker=.TEDSP%3AIND.
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positive output growth. Recovery in the rest of the world would likely transmit a
positive impulse to the United States by boosting demand for U.S. exports.
On the other hand, significant economic weakness remains evident.
• Consumer spending, although improving, remains tepid.
• Employment gains are only keeping pace with growth of the labor force, leaving
the unemployment rate historically high at 9.6%.
• The housing market remains weak. Mortgage loan foreclosures continue to rise.
House prices are still falling, continuing to have an adverse effect on the balance
sheets of households and banks, and dampening the recovery of aggregate
spending.
• Despite low interest rates, the Fed reports that credit conditions remain tight,
making getting loans difficult for consumers and businesses, and limiting many
types of credit supported expenditures.
The Shape Of Economic Recovery
In the typical post-war business cycle, lower than normal growth of aggregate demand during the
recession is quickly followed by a recovery period with above normal growth of spending,
perhaps spurred by some degree of monetary and fiscal stimulus. The degree of acceleration of
growth in the first two to three years of recovery has varied across post-war business cycles, but
has been at an annual pace in a range of 4% to 8%.12 This above normal growth brings the
economy back more quickly to the pre-recession growth path, and speeds up the reentry of the
unemployed to the workforce.
Once the level of aggregate demand approaches close to the pre-recession level of potential
output (or full employment), the economy returns to its pre-recession growth path where the
growth of aggregate spending is slower because it is constrained by the growth of aggregate
supply, which in recent years is estimated to have been at an annual pace of near 3.0%. (A
subsequent section of the report looks more closely at aggregate supply.)13
There is concern, however, that this time the U.S. economy, without further policy actions, will
either not return to its pre-recession growth path, perhaps remain permanently below it, or return
to the pre-crisis path but at a slower than normal pace, or worse, dip into a second recession.
Below normal growth would almost certainly translate into below normal recovery of
employment, whereas a second round of recession could increase the already high unemployment
rate. The next sections discuss problems on the supply side and the demand side of the economy
that could lead to a weaker than normal recovery.
12 Department of Commerce, Bureau of Economic Analysis, http://www.bea.gov/national/index.htm#gdp.
13 The long-term growth of aggregate supply is determined by the growth in the supplies of capital and labor and on the
growth in production technology used to turn capital and labor into goods and services.
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Demand Side Problems?
Whatever vigor is now occurring on the demand side of the economy is largely coming from
fiscal stimulus and businesses inventory restocking, and these are likely to remain an important
propulsive force into 2011. Fiscal stimulus and inventory rebuilding are, however, temporary
sources of support of aggregate spending. Sooner or later fiscal stimulus will fall away. The
Congressional Budget Office (CBO) projects that fiscal stimulus will peak in 2010 and make
progressively smaller additions to demand in 2011 and 201214 Inventory building is a self limiting
process that will not go on indefinitely; by 2011 stock-building will likely have only a small
positive effect on aggregate demand.
A strong recovery of private sector demand, including consumer spending, investment spending,
and exports is required to reduce unemployment and bring the economy quickly back to its pre-
recession growth path. However, there are major uncertainties about the potential medium-term
strength of each of these components that could dampen aggregate spending and constrain the
economy’s ability to generate a recovery period with above normal growth and quickly falling
unemployment.
Consumption Spending
Personal consumption expenditures constitute the largest and most stable component of aggregate
spending. During the first three post-war decades, personal consumption spending averaged a
62% share of GDP. However, that share rose significantly over the next three decades averaging
about 65% in the 1980s, 67% during the 1990s, and about 70% between 2001 and 2007. The high
level of household spending reached during the 2001-2007 expansion is unlikely to reemerge
during the current recovery because it was supported by an unsustainable increase in household
debt, decrease in personal savings, and ease of access to credit.
Household Debt
In the mid-1980s, after a long period of relative stability at a scale of around 45% to 50% of GDP,
the debt level of households began to rise steadily, reaching over 100% of GDP by 2008. Such a
substantial rise in the level of household debt was sustainable so long as rising home prices and a
rising stock market continued to also rapidly increase the value of household net worth, and
interest rates remained low, mitigating any rise in the burden of debt as a share of GDP.
The collapse of the housing and stock markets in 2008 and 2009 substantially decreased
household net worth, which had, by the end of 2009, fallen about $10 trillion below its level in
2007.15 This large fall in net worth pushed the household debt burden to what may be an
unsustainable level especially if interest rates rise. Repairing household balance sheets will
probably require a large diversion of current income from consumption spending to debt
reduction for several more years.16
14 The Congressional Budget Office, An Update: The Budget and Economic Outlook: Fiscal Years 2010 to 2020,
August 2010, http://www.cbo.gov/ftpdocs/108xx/doc10871/BudgetOutlook2010_Jan.cfm.
15 Board of Governors of the Federal Reserve System, “Flow of Funds Accounts,” Table B.100, June 2010,
http://www.federalreserve.gov/releases/z1/Current/z1r-5.pdf.
16 See Evan Tanner and Yassar Abdih, “Rebuilding U.S. Wealth,” Finance & Development, IMF, December 2009.
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The recent rise of the stock market from its low point in early 2009 has helped household wealth
to recover. However, rising home equity, largely dependent on the path of house prices, has
traditionally been the major contributor to household wealth. The rapid rise of home prices during
the last economic expansion caused an equally rapid rise in home equity. Consumers borrowed
against this equity to fund current spending. With the sharp fall of home prices, home equity was
reduced substantially, erasing that source of funding. Home prices are still falling and the housing
market is expected to remain weak for several more years. That weakness is likely to slow the
rebuilding of household wealth, and be a drag on the rebound of consumer spending.17
In addition to diverting more personal income to saving, a continued weak labor market is likely
to dampen income growth and, in turn, slow the recovery of consumer spending.
Credit Conditions
Easy credit availability in the pre-crisis economy enabled households to readily borrow against
their rising home equity to fund added spending. Financial innovations allowed lenders to keep
interest rates low and offer liberal terms and conditions to entice households to borrow. It seems
likely that credit conditions will be tighter during the current expansion. Interest rates are still low
but banks greatly tightened the terms and conditions of consumer loans during the crisis and
recession and are likely to continue to do so in the near term. While not likely as important a
cause of higher savings as high household debt, tighter credit conditions will make it less likely
that households will exploit any increase in their home equity to fund current spending, further
constraining consumer spending relative to what occurred during the 2001-2007 economic
expansion.
Personal Saving
The U.S. personal saving rate had averaged about 10% of GDP consistently through the
1970s,1980s, and 1990s. But since then the personal saving rate has declined sharply, reaching a
low of 1.0% by 2005.18 It is likely that the evaporation of household saving was in large measure
a consequence of the sizable increase in household net worth associated with increased house
prices and stock prices occurring at that time. As wealth rose rapidly, it was less urgent to divert
current income to saving.
The sharp reduction of household net worth during the recent recession dramatically changed the
financial circumstances of households, reducing the use of debt financed spending. The need to
repair household balance sheets is likely to induce households to pay down debt. The poor
prospect for the appreciation of house prices will sharply limit the ability to use rising equity as a
substitute for saving.
17 The standard model of consumer spending used in economic analysis assumes that consumers seek to avoid large
swings in their living standards over the course of their lifetimes. Thus as incomes rise and fall both in the short and
long term, individuals are expected to vary their saving rate in order to minimize the effect on their consumption. If
consumers seek to maintain a fairly stable level of consumption over their entire lives, then the level of consumption at
any given point in their lives will depend on their current wealth and some expectation about their income over the rest
of their lives. See Annamaria Lusardi, Jonathan Skinner, and Steven Venti, “Saving Puzzles and Saving Policies in the
United States,” National Bureau of Economic Research, Working Paper 8237, April 2001.
18 See CRS Report R40647, The Fall and Rise of Household Saving, by Brian W. Cashell.
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In addition, the above normal increase in economic uncertainty in the aftermath of the financial
crisis and recession will likely mean that over the medium term, households could be more
inclined to save. As the economic decline intensified, the personal saving rate increased, climbing
from 1.4% of GDP in the fourth quarter of 2007 to 4.5% of GDP in the third quarter of 2010.19
The financial imperatives behind greater personal saving are going to persist for some time and
with the recovery of household income the ability to save will also improve, suggesting that the
personal saving rate could continue to increase for several more years.
Slow Recovery of Consumer Spending?
If income rises and the personal saving rate stabilizes near 5%, that would translate into about a 3
percentage point increase over the rate that prevailed during the economy’s 2001-2007 expansion,
and in turn, a reduction in the consumption to GDP ratio, from about 70% to about 67%.
Therefore, for the U.S. economy to return to its normal pre-crisis growth path, a 3% share of GDP
will have to come from another component of aggregate demand.
Investment Spending
Investment spending is the third largest component of aggregate spending, averaging 17% to 18%
of GDP in years of near normal output growth. (Government spending is second largest at about
20%.) The largest portion of total investment spending is business fixed investment, averaging
11% to 12% of GDP in periods of normal growth. The second component of total investment is
residential investment, averaging 4% to 5% of GDP.
However, investment spending is very sensitive to economic conditions and more volatile than
consumer spending. This sensitivity is at least in part because investment projects are often
postponable to a time when economic conditions are more favorable. Its volatility makes
investment spending an important determinant of the amplitude, down and up, of the typical
business cycle. 20
As aggregate spending fell and credit availability tightened in 2008, investment spending quickly
weakened. As a share of real GDP, investment spending fell from about 16% in 2007 to about
11% at the economy’s trough in 2009. The sharp fall in real GDP from the second quarter of 2008
through the first quarter of 2009 was nearly fully accounted for by the sharp fall of investment
spending over this same period. Investment spending increased during 2010, elevating its share of
real GDP to 12.8%.
Typically, this same sensitivity also works in the opposite direction. Strongly rising investment
spending, responding to improving market demand, reduced uncertainty, and expanding credit
availability, often gives above normal contribution to the rebound of aggregate spending during
the recovery phase of the business cycle.
19 U.S. Department of Commerce, Bureau of Economic Analysis, National Accounts, Table 5.1, http://www.bea.gov/
national/nipaweb/SelectTable.asp?Selected=N.
20 Ibid, Table 1.1.5.
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Looking forward, however, some significant constraints on both residential and business
investment raise uncertainty about whether investment spending will be a strong contributor to
economic recovery, and therefore, whether it could be a component of aggregate spending
capable of compensating for a weaker than normal recovery of spending by consumers.
The principal constraint on residential investment is likely to be the large inventory of vacant
housing, left over from the 2002-2006 housing boom. It is estimated that the number of vacancies
could be more than 2 million units above what would normally be expected at this stage of the
business cycle. As discussed above, it is still not clear that the housing market has stabilized and
new construction remains very weak. The rate of housing starts is likely to remain low for the
next two years while the inventory overhang is worked down to a more normal level.
The prospect for nonresidential investment is likely to be better than for residential investment,
but it is not clear that nonresidential investment will exceed its pre-crisis level. On the supply
side, capacity utilization rates have climbed back from record lows of below 70% reached during
the recession, but, at about 75% currently, are still only at the lows reached in the 1990 and the
2001 recessions and well short of the 80% to 85% that would typically correspond to operating
near or at capacity. 21 On the demand side, business investment in new plants and equipment is
most often a response to the expectation of increased demand for the products they produce. The
main driver of that demand is consumer spending and as discussed above that spending has been
tepid, with the not unlikely prospect that it may continue to be weak over the near term if
households have made a lasting commitment to increased savings. Stronger foreign demand could
also stimulate investment spending and in theory compensate for the weaker pull of domestic
demand, but as discussed more fully below, foreign demand may also be weak. Also, problems in
the financial sector have sharply reduced activity in commercial real estate, causing business
investment in structures to continue to be flat.
Therefore, it seems unlikely that investment spending would provide the offset to any sizable fall
in consumption’s share of GDP over the near term.
Net Exports
The U.S. trade deficit (real net exports) shrank from about 6% of real GDP in 2006 to below 3%
in 2009. Since the beginning of the recession in late 2007 through mid-2009, net exports made a
significant positive contribution to real GDP in an otherwise declining economy. Even as
economic weakness abroad caused U.S. exports to fall, imports fell more, providing a net positive
push to current economic activity.22
The 3 percentage point swing in real net exports is, however, largely the consequence of the
severe economic weakness in the United States over this period. Since mid-2009, the trade deficit
has increased, reaching 3.8% of real GDP in the third quarter of 2010. This increase means that
over the course of the current recovery net exports have been subtracting from, not adding to
economic growth. This recent pattern makes it uncertain that net exports can boost aggregate
21 Data for Capacity utilization are available at Board of Governors of the Federal Reserve System, Industrial
Production and Capacity Utilization, Table G17, http://www.federalreserve.gov/releases/g17/.
22 U.S. Department of Commerce, Bureau of Economic Analysis, National Economic Accounts, http://bea.gov/national/
nipaweb/Index.asp.
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spending by offsetting weak consumption over the medium-term and help assure a sustained
recovery at pace that steadily reduces unemployment.
Boosting U.S. Net Exports Through a Rebalancing of Global Spending
Increasing U.S. net exports to any degree requires that the trade deficit continue to decrease. For
that to happen, trade surpluses in the rest of the world must simultaneously decrease. To achieve
this adjustment of trade flows, a sizable rebalancing of domestic and external demand on the part
of the deficit and surplus economies must occur.23
Because a trade deficit is a consequence of an economy spending more than it produces,
rebalancing in this circumstance requires a decrease of domestic spending and increase of
domestic saving. In contrast, because a trade surplus is a consequence of an economy spending
less than it produces, rebalancing in this circumstance requires an increase of domestic spending
and decrease in domestic saving.
This rebalancing of spending will cause the dollar to depreciate and foreign currencies to
appreciate. A fall in the value of the dollar relative to the currencies of the surplus countries
causes the price of foreign goods to rise for U.S. buyers and the price of U.S. goods to fall for
foreign buyers. This change in the relative price of foreign versus domestic goods will cause the
net exports of the deficit country to rise, giving the boost in spending needed to potentially offset
reduced consumption spending. The change in relative prices would also cause the net exports of
surplus countries to fall as more of current output is absorbed by increased domestic spending.
In the United States, as discussed above, some measure of rebalancing seems to be occurring, as
evidenced by the increase in the personal saving rate. Although there are good reasons to expect
this increase to be durable, there is the possibility that households would eventually revert to their
pre-crisis low saving ways. However, even if household saving remains higher, it is likely that
any significant increase in the overall U.S. national saving rate would also require an increase in
government saving via smaller federal budget deficits.
Large U.S. budget deficits over the near term are providing a needed boost to weak aggregate
spending during the early stages of an economic recovery. With the strengthening of private
spending as the recovery matures, large government budget deficits would fade away, causing
government saving to rise. What puts this fading away of budget deficits in doubt over the long-
term is the prospect of having to fund the obligations attached to the rising demand of an aging
U.S. population for healthcare, social security, and other entitlements. Without policy actions to
address these long-term demands, it is not clear how the long-term budget deficits will fall.
Effective global rebalancing arguably also involves sizable adjustments by the largest surplus
economies—Germany, Japan, and China. However, there are significant potential constraints on
how substantially each of these three economies can “save less and spend more,” perhaps limiting
any sizable appreciation of their currencies relative to the dollar, and any associated boost in U.S.
net exports.
23 On global rebalancing, see for example: Olivier Blanchard, “Sustaining Global Recovery,” International Monetary
Fund, September 2009, “Rebalancing,” The Economist, March 31, 2010, http://www.imf.org/external/pubs/ft/fandd/
2009/09/index.htm, and Board of Governors of the Federal Reserve System, Vice-chairman Donald L. Kohn, Speech
“Global Imbalances,” May 11, 2010, http://www.federalreserve.gov/newsevents/speech/kohn20100511a.htm.
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The inability of Germany to move its exchange rate independently from the other Euro area
economies reduces its flexibility of adjustment. In addition, the effects of recession have left
limited room for further fiscal expansion and small ability to lower the household saving rate.
While its level of debt is not high, recent German policy actions have stressed fiscal
consolidation, tending to increase saving and dampen spending. Japan, which does have a very
high level of public debt, has little to no room for fiscal expansion and a poor prospect of
boosting household spending. Moreover, both Germany and Japan, faced with substantial near-
term economic weakness in the aftermath of the global recession, may take steps to avoid the
dampening of their net exports that a sizable appreciation of the exchange rate would cause.
China has the largest bilateral trade surplus with the United States and therefore has the potential
to have a large impact on U.S. export sales and through that a significant positive impulse on the
pace of the U.S. economic recovery. Also, economic growth has remained relatively strong in
China through the recent global financial crisis and recession and aggregate demand is expected
to be strong through the next two to three years. What is uncertain, however, is whether a greater
share of this spending will be domestic demand, particularly consumption spending by Chinese
households.
The very high rate of saving by Chinese households is thought to be a precautionary measure to
compensate for a lack of social insurance. It likely also reflects limited access to consumer credit.
The difficulty for the near-term task of sustaining economic recovery is that even if policy actions
are taken to remove these constraints on consumer spending, households are likely to only
gradually change their pattern of consumption and not provide a sharp near-term boost to
domestic spending.
Also, a closer look at the sources of increase in China’s domestic saving over the last decade
reveals that the principal contributor to that growth was Chinese companies, not households.
Therefore changing the saving practices of Chinese companies is likely to be an important aspect
of any large increase in China’s saving rate. It is argued by some that Chinese companies retain
too large a share of their earnings. Better access to credit and changes in the governance rules of
Chinese business would likely reduce the business saving rate. But, as with households, even if
such policy initiatives are forthcoming, the change in the business saving rate is likely to emerge
only gradually.24
Even with a successful rebalancing, it is unlikely that China alone can propel a boost in U.S. net
exports sufficient to offset weak domestic demand and pace economic recovery. China’s global
trade surplus is estimated to be about 10% of GDP. However, China is only about one-third the
size of the U.S. economy. Therefore, if China’s trade were only with the United States, it would
have to reduce its trade surplus by 3% of GDP to affect a 1 percentage point reduction of the U.S.
trade deficit. But since, in fact, only about 16% of China’s trade is with the United States, it
would take a 15 percentage point change in China’s trade balance (moving from a surplus equal
24 Of course, for these reforms to translate into a shift in China’s trade balance, that nation must be willing to allow its’
exchange rate to rise relative to the dollar, causing a decrease in the price of foreign goods relative to domestic goods,
and exerting downward pressure on China’s trade surplus. From July 2005 to February 2009, China abandoned its
dollar peg, allowing the yuan to appreciate by 28% (on a real trade-weighted basis). However, faced with weakening
export sales due to the global financial crisis China for the last 10 months has re-pegged the yuan to the dollar. China’s
export-led growth model, relying on a high saving rate (to keep internal demand low) and a low exchange rate pegged
to the dollar (to keep external demand high), has been very successful and, despite the possible advantages of reforms
to boost domestic demand, it is uncertain whether China would move substantially away from this model.
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to 10% of GDP to a deficit equal to 5% of GDP) to reduce the U.S. trade deficit by 1 percentage
point. (This assumes that the fall of China’s trade surplus is not offset by an increase of other
trading partners surpluses.)
Other emerging Asian economies also run trade surpluses and adding these to the calculation
makes the relative scale of rebalancing needed to achieve a given amount of improvement in the
U.S trade deficit more feasible. However, all of emerging Asia is only about half the size of the
U.S. economy. Therefore, if the U.S. share of the whole region’s trade is similar to China’s,
emerging Asia would need to accomplish a sizable 7 percentage point change in its trade balance
to generate a 1 percentage point change in the U.S. trade balance. As with China, for a reduction
of the trade surpluses of other emerging Asian economies to happen quickly, their currencies will
need to appreciate against the dollar.
All and all, there are reasons to doubt whether U.S. net exports can increase over the near term at
a pace sufficient to fully compensate for the prospect of slower than normal growth of other
components of U.S. domestic spending.
Supply Side Problems?
The supply side of the economy governs its capacity for producing goods and services. That
capacity is a function of the economy’s supplies of labor and capital and the level of technology
used to turn labor and capital into the output of goods and services. In the short run, the potential
supplies of these productive factors is relatively fixed and will determine the economy’s potential
output. In periods of economic slack, rising aggregate demand can increase the economy’s output
and employment up to the level of potential output, which corresponds with full employment.
In the long run, as the supplies of capital and labor and the level of technology increase, the level
of potential output also increases. Over time the steady rise of potential output will define the
economy’s long-term growth path (called the “trend” growth rate). When aggregate demand is
below potential output the economy can grow faster than trend growth, but when the level of
aggregate demand reaches the level of potential output, further growth of output will be
constrained to the trend growth rate.
Typically the long run growth path is thought to be relatively stable and not greatly affected by
recessions and the associated short-term fluctuations in aggregate demand. Over the post-war
period, the average annual growth rate of potential output for the United States has been 3.4%,
however, since the 1970s it has averaged closer to 3.0%.25
Recent analysis by the International Monetary Fund (IMF) examines the question of whether
output will return to its pre-crisis trend after the crisis.26 It examines the medium-term and long-
run paths of output after 88 banking crises over the past four decades in a wide range of countries
(including both advanced and developing economies). A key conclusion was that seven years
25 Ibid, CBO, p.39.
26 P. Kannan, A. Scott, and M. Terrones (2009), “From Recession to Recovery: How Soon and How Strong?,” in World
Economic Outlook, pp. 103-138. International Monetary Fund. Also see Furceri, Davide and Annabelle Mourougane,
“The Effect of Financial Crisis on Potential Output: New Empirical Evidence from OECD Countries,” Economics
Department Working Papers No. 699, May 2009.
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after the crisis, output had declined relative to trend by nearly 10% for the average country. But
there was considerable variation of outcomes across crisis episodes.
In other words, such crises not only reduce actual output, but also may reduce potential output
(the economy’s structural and institutional capacity to produce output). In this circumstance, the
economy could return to its trend growth rate, but there is unlikely to be a rebound period of
above normal growth to quickly return the economy to its pre-crisis potential output and growth
path and, in turn, quickly reduce unemployment. This failure to return to the pre-crisis potential
output means that the economy bears the burden of a permanent output loss and the large initial
increase in the unemployment rate caused by the crisis could persist even as the economy is
growing at its trend rate.
The reduction of the post-crisis growth path is found to be the consequence of decreases of
approximately equal size in the employment rate, the capital-labor ratio, and productivity. The
adverse effect of the financial crisis on the employment rate is thought to arise from an increase
in the “structural unemployment rate,” hampering the post-crisis economy’s ability to accomplish
the needed reallocation of labor from sectors that have contracted permanently to sectors that are
expanding.
Because the aftermath of the crisis will likely involve sizable changes in the composition of the
economy, it likely also increases the mismatch between the skills of the unemployed and the skills
demanded in the post-crisis labor market—job vacancies go unfilled for lack of a worker with
sufficient skills for the job.27 Also, labor force participation rates may fall if the crisis is severe
enough to substantially increase the numbers of the long-term unemployed, some of whom may
become discouraged from searching for a new job. A crisis induced fall of house prices and a
rising incidence of mortgages with negative equity will also discourage the geographic mobility
of workers who are unable to sell their house.
The adverse impact of a financial crisis on capital accumulation is likely the combined outcome
of several factors. Decreased demand for products and heightened uncertainty of potential return
dampens the incentive to invest. In addition, the financial crisis could impede the process of
financial intermediation for up to several years, as weakened balance sheets, lower collateral
values, and elevated risk premiums slow the flow of credit and elevate the real cost of borrowing.
The dampening effect on productivity may occur as higher risk premiums and a generally more
cautious approach to spending by businesses diminishes the willingness and ability to finance
relatively high-risk projects. Expenditures on research and development are very pro-cyclical and
likely to be sharply reduced in times of crisis.
Productivity tends to recover quickly after recessions and thus allow the economy to resume
growth at the pre-crisis trend rate. However, the capital and employment losses tend to endure
and keep the economy on a lower growth path.
Has the recent financial crisis caused a reduction in the potential output of the U.S. economy and
placed it on a lower trend growth path? It is difficult to make a concurrent determination because
potential output is not directly observable, and can only be imputed from the economy’s actual
27 Employment in construction, financial services, and some types of manufacturing may remain depressed for some
time, requiring some who lose their jobs in those sectors to seek employment in other sectors.
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post-crisis performance. Therefore, a clear determination of such a permanent output loss is some
years in the future.
Although the IMF study gives reasons why the financial crisis possibly could have adversely
affected the economy’s supply-side, the study also finds that there can be some significant
mitigating factors that could be particularly relevant for the U.S. economy. First, a high pre-crisis
investment share is a good predictor of a large potential output loss. This is a reflection of the
high sensitivity of investment to the negative effects of a financial crisis. For the United States
there was no sharp increase in investment spending above trend as measured as a share of GDP
for the three years prior to the financial crisis, averaging near a typical 16% of GDP.
Second, the IMF study also found that those economies that aggressively apply stimulative fiscal
and monetary policies during the crisis tend to have smaller medium-term output losses. As
already discussed, the United States has applied quickly and substantially stimulative polices in
response to the financial crisis.
Third, countries with fewer labor market rigidities suffered smaller medium-term output losses.
U.S. labor markets, as compared to other advanced economies, are relatively free of labor market
rigidities, though as mentioned declining house prices may have reduced mobility of some
workers who own their own homes.
Policy Responses to Increase the Pace of Economic Recovery
If the pace of private spending proves insufficient to assure a sustained recovery, would further
stimulus by monetary and fiscal policy be warranted? One of the important lessons from the
Great Depression is to guard against an overly hasty withdrawal of fiscal and monetary stimulus
in the fragile early stages of recovering from a sharp economic decline. The removal of fiscal and
monetary stimulus in 1937 is thought to have stopped the ongoing economic recovery and caused
a slump that did not end until WWII.28
The Case for More Fiscal Stimulus
In a recent speech, Lawrence Summers, Assistant to the President for Economic Policy and
Director of the National Economic Council, argued that further fiscal stimulus is necessary
because the effects of the first stimulus package are now beginning to fade, and because of the
prospect that private spending may still lack sufficient vigor to sustain a healthy recovery.29 The
risk, in Summers’ view, of not applying further fiscal stimulus is possibly several years of sub-
normal growth, or worse, dipping into a second recession. Nevertheless, in his speech, Summers
also recognized the need for a complementary policy to address the long-term challenge to
economic growth of large future budget deficits. In periods of normal economic growth,
28 For further discussion of economic policy during the Great Depression, see Christina D. Romer, “The Nation in
Depression,” The Journal of Economic Perspectives, vol. 7, no. 2 (spring 1993), pp. 19-39.
29 Lawrence H. Summers, “Reflections on Fiscal Policy and Economic Strategy,” Speech at the Johns Hopkins School
of Advanced International Studies, May 24, 2010. Other economists have also concluded that further stimulus is called
for. See, for example, Brad DeLong “The Worst -of-Both-Worlds Fiscal Policy,” June 18, 2010,
http://delong.typepad.com/sdj/2010/06/worst-of-both-worlds-fiscal-policy.html; and “The Case for More Stimulus”
Interview with William Gale of the Brookings Institution, June 2010, http://www.theatlantic.com/business/archive/
2010/06/the-case-for-more-stimulus/57776/.
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unconstrained by weak aggregate demand, large budget deficits are thought to increase interest
rates, depress investment, and dampen economic growth. He urged Congress to pass a variety of
spending measures it is now considering that would inject up $200 billion into the economy.
A recent CBO report examined the potential for various fiscal policy options for increasing
economic growth and employment in 2010 and 2020, emphasizing the policies’ cost effectiveness
as measured by the effects on GDP and employment per dollar of budgetary cost.30 Recognizing
the role of uncertainty, high and low estimates were generated giving a range for the effects. For
2010, the biggest “bang for the buck” came from increasing aid to the unemployed, reducing
employers’ payroll taxes, and reducing employer payroll taxes for firms that increase their
payroll. (Providing an additional one-time social security payment and allowing full or partial
expensing of investment costs also had a positive impact). For 2011, the CBO finds the strongest
effects would come from providing aid to states for projects other than infrastructure and
providing additional refundable tax credits for lower and middle income households.
However, the CBO report also cautioned that despite their beneficial short-run effects, these
actions would also add to already large future deficits. Unless future actions were taken to offset
the accumulation of additional government debt, future economic growth would tend to be lower
than otherwise. However, the scale of economic stimulus now being discussed, while possibly
having a sizable effect on aggregate demand in the short run, would have a relatively small effect
on the size of the government’s long-term debt.
Because the United States faces two macroeconomic problems, two policy responses are,
arguably, appropriate: a short-term policy to sustain a cyclical recovery of economic growth and a
long-term policy to trim government debt. Conceptually there is no necessary tradeoff between
these two objectives. They can be mutually reinforcing: a credible commitment to dealing with
the long-term debt problem allays investor uncertainty and increases the near-term incentive to
spend, while effectively dealing with the short-term problem of weak aggregate demand puts the
economy on a stronger growth path, which boosts tax revenue and eases the long-term debt
problem.
The Case Against More Fiscal Stimulus
The case against more fiscal stimulus comes in three forms, used separately or in combination;
one, no further stimulus is needed; two, fiscal stimulus does not work; and three, stimulus
increases the budget deficit, makes the U.S. long-term debt problem worse, and dampens
economic growth.31
In regard to the need for stimulus, the U.S. economy does have strong recuperative powers and it
is possible that private spending and economic growth will soon surge without further fiscal
stimulus. Events such as improved consumer confidence, lower energy prices, a more normal
flow of credit, or faster growth in the rest of the world could separately or in combination induce
stronger spending by households and businesses. However, given the severity of the recent
30 CBO, Policies for Increasing Economic Growth and Employment, January 2010, http://www.theatlantic.com/
business/archive/2010/02/heres-why-government-stimulus-does-not-work/36466/.
31 See for example: Derek Thompson, “The Case Against More Stimulus,” The Atlantic, June 2010,
http://www.theatlantic.com/business/archive/2010/06/the-case-against-more-stimulus/57774/, and “Here’s Why Fiscal
Stimulus Won’t Work,” The Atlantic, February 2010.
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recession and, as outlined above, given the current weakness of private spending and the several
economic obstacles that households and businesses will probably continue to face over the near
term, there remains a significant risk of sub-normal growth for the next one to two years.
In regard to the ability of fiscal stimulus to boost output and employment, some economists argue
that fiscal stimulus only shifts spending, it does not increase spending. In this view, when people
see the government running a budget deficit, they anticipate that the government will need to
increase taxes in the future to pay off the debt, and increase their current savings to pay for the
higher taxes. The increase in saving tends to offset the stimulative effect of the budget deficit.32
There is little empirical support for this theory, however. Mainstream economic analysis indicates
that in circumstances like the present, where the economy’s output is likely constrained by
insufficient demand, fiscal stimulus can raise the level of output and employment.33
In regard to the long-term debt problem, it is often pointed out that for an economy operating
close to potential output, government borrowing to finance budget deficits will draw down the
pool of national saving, leaving less available to support private capital investment. Private
investment by business and households in education, housing, research & development, and
capital equipment that would have otherwise occurred is in theory “crowded out” through higher
interest rates bid up by the government borrowing. If budget deficits divert national saving from
private investment, other things equal, future productivity and income growth may be slowed.
However, the U.S. economy is currently operating well short of capacity and the risk of such
“crowding out” occurring and damaging future economic growth does not seem immediate.34
Once the short-term problem of weak demand is solved and the economy has returned to a normal
growth path, the appropriate policy response for an economy with a looming debt crisis is fiscal
consolidation—cutting deficits. Such a policy would have the benefits of low and stable interest
rates, a less fragile financial system, improved investment prospects, and possibly faster long-
term growth.
Is More Monetary Stimulus Needed?
Could monetary policy do more to put the economy on the path of sustained recovery? The Fed
thinks it could. On November 3, 2010, the Fed announced that it would provide more monetary
stimulus by means of the purchase an additional $600 billion of Treasury securities at a pace of
about $75 billion per month, and continue the practice of replacing maturing securities with
Treasury security purchases. This would effectively increase the size of the Fed’s balance sheet to
32 This theory is called “Ricardian equivalence.” It is named after the nineteenth-century economist David Ricardo who
first made the argument. For further discussion see N. Gregory Mankiw, Principles of Economics (Ft. Worth, Dryden
Press, 1998), p. 556, and Robert J. Barro, “Are Government Bonds Net Wealth?” Journal of Political Economy, vol.
82, no. 6. (November-December, 1974), pp. 1095-1117.
33 See CRS Report RL31235, The Economics of the Federal Budget Deficit, by Brian W. Cashell; Alan J. Auerbach and
William G. Gale, “Activist Fiscal Policy to Stabilize Economic Activity,” working paper, September 29, 2009,
available at http://elsa.berkeley.edu/~auerbach/activistfiscal.pdf; and Robert E. Hall, “By How Much Does GDP Rise If
the Government Buys More Output?” Brookings Papers on Economic Activity, fall 2009, pp. 183- 250.
34 For discussion of the long term debt issue see President Obama’s National Commission on Fiscal Responsibility and
Reform, http://www.fiscalcommission.gov/.
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more than $2.5 trillion. The planned maturity length of the securities that will be purchased is
mostly between 2 ½ and 10 years.35
The Fed argues that more monetary stimulus is needed because economic growth is decelerating
and much of that momentum is being provided by the transitory factors of inventory adjustment
and fiscal stimulus. Since the second quarter of 2010, growth has slowed to around 2%, a pace
that may not be fast enough to keep the unemployment rate from rising. Fed Chairman Ben
Bernanke indicated that of particular concern is the substantial increase in the share of the long-
term unemployed (workers who have been without work for six months or more). Such long-term
unemployment tends to convert temporary cyclical unemployment into more intractable structural
unemployment. In addition, the lingering economic slack in the economy has added to
deflationary pressure. Measures of core inflation have been decelerating over the last year and are
currently only slightly above 1%. A continuous decline in the price level is troublesome because
in a weak or contracting economy it can lead to a damaging, self-reinforcing, downward spiral of
prices and economic activity. Deflation was a major exacerbating force to the economy’s decline
during the Great Depression.
The Case Against More Monetary Stimulus
The Fed’s recent policy initiative to provide more monetary stimulus has also been criticized. One
concern is the increased risk of inflation. Such a large increase in bank reserves would also lead
to a rapid increase the overall money supply through the “money multiplier” effect, which in
normal times might generate inflation. At present, the sizable degree of slack in the economy and
the banks heightened tendency to hold reserves rather than lend them out, keeps the risk of
inflation low. However, when the economy returns to more normal conditions, reserves would
likely need to be removed to avoid excessive upward pressure on prices. The likely
unprecedented scale of the reserves that might need to be drained from the economy has raised
concerns about whether the Fed could effectively provide the degree of restraint needed to keep
inflation under control.
Another criticism of the Fed’s new round of monetary stimulus is that it will depreciate the dollar.
Although influencing the exchange rate is not a stated goal of the Fed’s policy, standard
macroeconomic theory would predict, all else equal, that a by-product of monetary stimulus
would be to reduce the value of the dollar (assuming other countries do not similarly alter their
monetary policy in response). Although a weaker dollar would have a stimulative effect on total
spending in the United States by increasing exports and decreasing imports, countries such as
Germany, Japan, and China that have relied on net exports to propel their economic growth are
resistant to a depreciating dollar and have criticized the Fed’s actions.
In addition, the argument is made that further monetary stimulus will have little impact on real
economic activity. In the current economic environment, with badly weakened household and
business balance sheets placing a premium on improving liquidity, it is difficult for monetary
policy to get “traction” stimulating the broader economy.
35Board of Governors of the Federal Reserve System, Federal Open Market Committee, http://www.federalreserve.gov/
monetarypolicy/fomccalendars.htm.
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Economic Projections
Given the large deterioration of the balance sheets of households and businesses, the
possible reduction of the U.S. economy’s level of potential output, and the weakened
state of the global economy in the aftermath of the recent financial crisis, projections
of the U.S. economy’s near-term path carry a high degree of uncertainty. Weighing
the several forces, positive and negative, that are likely to influence economic
activity over the near term, most economic projections indicate U.S. economic
recovery will continue, albeit at a slower than normal pace:
• CBO projects that the recovery will continue at a modest pace. Real GDP is
projected to grow by only 2.0% from the fourth quarter of 2010 to the fourth
quarter of 2011, down from a 2.8% pace over the previous four quarters. The
unemployment rate is projected to fall to 9.0% in 2011.36
• The Blue Chip consensus, the average of about 50 forecasts by private-sector
economists, projects real GDP will continue to rise, up 2.7% in 2010 and 2.5% in
2011. The unemployment rate is projected to fall to 9.3% in 2011.37
• The IMF projects real GDP in the United States to increase 2.6% in 2010 and
2.3% in 2011. Growth at this pace implies that the gap between actual and
potential output will remain wide. Therefore the unemployment rate is expected
to remain high at 9.7% in 2010 and 9.6% in 2011. Globally, the IMF expects
modest but steady recovery in most advanced economies and strong growth in
many emerging and developing economies. World output is projected to increase
4.6% in 2010 and 4.3% in 2011.38
• Fed Chairman Bernanke says “despite the recent slowing, it is reasonable to
expect some pick-up in growth in 2011 and subsequent years. Broad financial
conditions, including monetary policy are supportive of growth, and banks
appear willing to lend. Importantly households may have made more progress
than we had earlier thought in repairing their balance sheets, allowing them more
flexibility to increase their spending as conditions improve. And as the expansion
strengthens, firms should become more willing to hire.”39
Forecasts are always subject to uncertainty. That uncertainty is likely to be especially high at this
time because forecasting the path of the economy near turning points in the business cycle is
always difficult and because of the singular characteristics of the current business cycle (i.e.,
sharp financial crisis, unusual and strong policy responses, and an elevated risk of deflation).
36 Congressional Budget Office, The Budget and Economic Outlook:an Update, August 2010, http://www.cbo.gov/
ftpdocs/117xx/doc11705/08-18-Update.pdf.
37 Aspen Publishers, Blue Chip Economic Indicators, September 10, 2010.
38 International Monetary Fund, World Economic Outlook: An Update, October 2010, http://www.imf.org/external/
pubs/ft/weo/2010/02/pdf/c2.pdf.
39 Board of Governors of the Federal Reserve System, Chairman Ben S. Bernanke, “The Economic Outlook and
Monetary Policy,” Speech at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole,
Wyoming, August 27, 2010, http://www.federalreserve.gov/newsevents/speech/bernanke20100827a.htm.
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Author Contact Information
Craig K. Elwell
Specialist in Macroeconomic Policy
celwell@crs.loc.gov, 7-7757
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