And, while higher-income and wealthier households have a buffer of savings to smooth consumption and avoid having to increase savings, most lower-income households must save more, as banks and other lenders cut back on home-equity loans and lower limits on credit cards.
As a result, the household savings rate has risen from zero to 4 percent of disposable income. But it must rise further, to 8 percent, in order to reduce the high leverage of household sector.
To be sure, the US government is increasing its budget deficits to put a floor under demand. But most state and local governments that have experienced a collapse in tax revenues must sharply retrench spending by firing policemen, teachers and firefighters while also cutting welfare benefits and social services for the poor. Many state and local governments in poorer regions of the country are at risk of bankruptcy unless the federal government undertakes a massive bailout of their finances.
Moreover, income and wealth inequality is rising again: Poorer households are at greater risk of unemployment, falling wages, or reductions in hours worked, all leading to lower labor income, whereas on Wall Street outrageous bonuses have returned with a vengeance.
With the stock market rising while home prices are still falling, the wealthy are becoming richer, while the middle class and the poor — whose main wealth is a home rather than equities — are becoming poorer and being saddled with an unsustainable debt burden.
So, while the US may technically be close to the end of a severe recession, most of the country is facing a near-depression. Little wonder, then, that few Americans believe that what walks like a duck and quacks like a duck is actually the phoenix of recovery.
Nouriel Roubini is professor of economics at the Stern School of Business at New York University and chairman of Roubini Global Economics.
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