Economist Says We Can End The Recession By Reducing Household Debt

Big Think recently approached five leading international economists for their best predictions on when we will be out of the mess known as our national economy.

Watch for their commentary in the Big Think blog in the coming days. And after you listen to their ideas, you can let the countdown begin.

Today’s prediction is from Professor Jan de Vries of the University of California, Berkeley. De Vried is the Sidney Hellman Ehrman Professor of History and is one of the world’s leading specialists on the early modern history of economics. He holds a Ph.D. from Yale University and was awared the Heineken Prize for History in 2000 by the Royal Netherlands Academy of Arts and Sciences.

So, Professor de Vries, when will the recession end?

“Therecessionwillendwhen three things have happened:

1. residential real estate prices reach a floor (based on rental rates and vacancy rates) that gives new buyers confidence to enter the market
2. trust is restored to commercial lending markets, which will require a belief that there are no more big surprises hidden in balance sheets and that the        regulatory environment will be predictable
3. household debt is substantially reduced

The first could happen within a year, the second is hard to predict, and the third will take longer, several years. And, as long as it is ongoing, consumer spending will be weak. This will not be greatly speeded by the stimulus package. It might slow the rise in unemployment, but won’t revive spending in most sectors until the debt overhang is worked away.”