Did Obama Save the Economy?

"Two years ago, the McKinsey Global Institute looked at the recoveries of 32 countries that had undergone a financial crisis. Their analysis was grim. It was also correct. Contrary to the hopes some held for a quick recovery, MGI warned that financial crises tended to lead to long, slow recoveries as households, businesses and governments dug their way out of debt. But in a report released last week, MGI delivered some sunnier news — at least for the United States. If you look at the 10 largest developed economies in the world, the United States is the furthest along the path to recovery.

Looking back to their sample of 32 past instances with post-financial crisis recoveries, MGI zeroed in on Finland and Sweden’s experiences in the 1990s as the most relevant to our current moment. Those examples 'show two distinct phases of deleveraging. In the first, households, corporations, and financial institutions reduce debt significantly over several years, while economic growth is negative or minimal and government debt rises. In the second phase, growth rebounds and government debt is reduced gradually over many years.'

Most economies, the authors say, are barely even in phase one. In the United Kingdom and Spain, for example, total debt is still rising. But not in the United States. Here, 'debt in the financial sector relative to GDP has fallen back to levels last seen in 2000, before the credit bubble. U.S. households have reduced their debt relative to disposable income by 15 percentage points, more than in any other country; at this rate, they could reach sustainable debt levels in two years or so.'"

Read the Washington Post, U.S. recovering faster than its peers.

So much for the myth of expansionary austerity.