If we take a look at the output gap in the USA we can obtain a far better understanding of the hole that the Great Recession put us in. Here are some of the ugly facts about the US economy:
- The output gap peaked in 2009 putting us in a $1.1 trillion hole or about 8% of GDP.
- The current output gap of $1.06T is roughly 6.82% of GDP.
- The US economy has averaged 4.6% nominal GDP growth since 1990.
- The US economy has averaged 3.8% nominal GDP growth since 2000.
- In the last 3 years the US economy has averaged just 3.7% nominal growth.
- In order to eliminate the output gap entirely the US economy would need to grow at 5% for the next 5 years.
That might not sound as horrible as you might have presumed. All we need to do is grow at the average nominal rate of the last 20 years and we’ll slowly, but surely get back to “normal”. There’s just one problem. The average post-war recovery lasts about 60 months or 5 years. We’re now in year three of the recovery. That means we’re nearing our “due date”. Either that or we’re dependent on 8 years of straight recovery without a recession. History doesn’t like the odds of that occurrence. The above maths assumes no hiccups along the way. And history says we’re likely to see a bump in the road in the coming few years. Either that or we’d need to experience one of the longest post-war recovery periods ever. I’d call that a minor miracle given the circumstances and continuing fragility of the US economy….
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