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Strategic Analysis | January 2009

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

The Federal Reserve’s latest flow-of-funds data 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 US and the World: A Crisis That Conventional Remedies Cannot Resolve.

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