Christina Romer’s Not So Good News for the US (and Coral Gables, too)

From Christina Romer’s, Chair of the Council of Economic Advisors, speech to the National Press Club gives her overview of the economic crisis, the reasons for the underestimation of the impacts of the policies and the depths of the recession, and her views on what needs to be done.

See a part of her statement focuses on the economy that has a large headwind and state and local governments are being hit quite hard.  I interpret her words to mean that we are in for a long slog (as they say).

Indeed, the economy faces numerous headwinds not normally present in recoveries. In addition to the oversupply of housing, households have been through a searing crisis that is likely to make them more prudent for years to come — in much the same way that the Great Depression gave rise to a generation of high savers and cautious investors. Likewise, the decline in wealth is likely to lead to increased saving to replenish retirement accounts and pay off debt. Such saving and prudence are healthy for the economy in the long run, but in the near term they mean that consumer spending will likely be less robust than before the crisis.

State and local governments have also been hit particularly hard by this recession. Their tax revenues are notoriously cyclically sensitive and the decline in house prices has further impacted property tax revenue. State and local budget-cutting reduced GDP growth over the past year and is likely to continue to be a drag on GDP going forward. And while the private sector has added jobs every month so far this year, state and local governments have reduced employment by 169,000 since last December.[emphasis added]