U.S. economy braces for old challenges, new headwind   2011-12-12 20:07:20            

by Xinhua writers Jiang Xufeng, Liu Lina

WASHINGTON, Dec. 12 (Xinhua) -- The U.S. economy is appearing to be on a stronger footing with more U.S. consumers loosing their purse strings in the current holiday shopping spree after years of austerity and thrift due to the severe financial crisis.

But experts caution that the fragile U.S. economy is still in a painfully long process of deleveraging and needs to tackle the old set of problems including high unemployment and budget deficits, as well as a new downside risk from the eurozone debt turmoil in the near term.


Economists hold that trillions of dollars of U.S. household wealth has evaporated during the financial crisis, and the enormous loss of securities and housing values are weighing on the private sector demand and consumption.

"The natural reaction of U.S. households is to try to rebuild the wealth, and to do that by spending less and saving more," Nobel Prize laureate economist Robert Solow told Xinhua.

The deleveraging process will work itself out at a very slow pace, contended Solow, adding that "if that has to happen naturally, it could take three, four or five years."

U.S. household net worth, the gap between the value of assets and liabilities, further shrank by 2.4 trillion U.S. dollars from the second quarter this year to 57.4 trillion dollars by the end of September, latest figures from the U.S. Federal Reserve revealed.

It is the second straight quarterly decline, and the sharpest drop since the October-December quarter of 2008. The U.S. household net worth has decreased by about 12 percent from its peak before the financial crisis.

"The U.S. economy has still not recovered from the recession, and we will not recover until there is a substantial increase in the demand for goods and services," said Solow, a renowned U.S. economist who urges the U.S. federal government to adopt expansionary fiscal moves to speed up the deleveraging process and bolster economic growth.

Solow's view was echoed by Karen Dynan, a senior fellow at the Washington-based Brookings Institution, who argues that many U.S. households still remain "under a great deal of strain."

The fact that there is more deleveraging to come suggests that the overhanging debt remains a headwind to the U.S. economic recovery, noted Dynan.

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Editor: Bi Mingxin
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