"Flow of Funds Figures Show the Largest Drop in Household Borrowing in the Last 40 Years"

The Federal Reserve's latest Flow of Funds figures reveal that household borrowing has fallen sharply lower, bringing about a reversal of the upward trend in household debt. According to the Levy Institute's macro model, a fall in borrowing has an immediate effect--accounting in this case for most of the 3 percent drop in private expenditure that occurred in the third quarter of 2008--as well as delayed effects; as a result, the decline in real GDP and accompanying rise in unemployment may be substantial in coming quarters. For further details on the Macro-Modeling Team's latest projections, see the December 2008 Strategic Analysis Prospects for the U.S. and the World: A Crisis That Conventional Remedies Cannot Resolve.