Why does a crisis last for a long time?

- "We seek to ascertain what explains the difference between a short recession, followed fairly quickly by a recovery, and an enduring crisis, in which the recession is followed by a long period of low growth."-
- "We believe that the explanation lies in the need to correct households' balance-sheet structure. Companies can fairly easily improve their balancesheet situation, especially in the United States, by distorting income sharing in their favour and by sharply scaling back their investments (as in the early 2000s), something that households cannot do."
- "Households must very gradually reduce their indebtedness and restore their wealth by saving more and reducing their housing investment; this process is all the more difficult in that, because household spending is sluggish, growth (in GDP and household income) is slower. This is what occurred in Japan and it is what will probably occur now in the United States and Europe."

Natixis Flash Economics 392 20100806

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