Why the economy is slow

Testimony of Chairman Alan Greenspan
The Federal Reserve's semiannual monetary policy report
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate
July 18, 1996

... Looking forward, there are a number of reasons to expect demands to moderate and economic activity to settle back toward a more sustainable pace in the months ahead.

First, the bond markets ...

Second, the value of the dollar ...

Third, the support to economic growth provided by expenditures on durable goods, both for household consumption and business fixed investment, is likely to wane in coming quarters. Consumer spending in the past few years has been boosted as households have made up for the purchases of big-ticket items that they had deferred during the recession and the early, weaker phase of the recovery. Five years after the business-cycle trough, however, we should expect that this pent-up demand has been largely exhausted. Moreover, many households have built up sizable debt burdens in recent years, and coping with debt repayments could hold down their spending.

That last part -- repayment of debt holds down spending -- that's what I talk about all the time. I'm just thrilled to see Greenspan admit it could happen.


Greenspan also said

While these are all good reasons to anticipate that economic growth will moderate some, the timing and extent of that downshift are uncertain.

It didn't happen in 1996. It happened in 2008, and it was hard to miss.