The US administration refuses to accept a structural adjustment: What will the effects be?

- "Prior to the crisis, growth in the United States was sustained by household demand and indebtedness and by wealth effects, especially property wealth."
- "The crisis resulted from the end of this growth model: debt ratios could no longer increase, and the real estate bubble burst."
- "Household demand then has to decline and the household savings rate has to rise to stabilise indebtedness and gradually correct the wealth loss. This is what we call a structural adjustment. This means that a serious recession (amplified by companies' reaction) cannot be avoided. But the US administration and the Federal Reserve do not want to accept this recession."
- "This means that the fiscal deficits will not be reduced in a hurry and that monetary policy will become even more expansionary. This desperate attempt to avoid the structural adjustment can eventually only lead to a sharp depreciation of the dollar."

Natixis Flash Economics 415 20100826

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