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A. R. Kakhsaz Company
an accountancy corporation
Member
American Institute of
Certified Public Accountants
International associates:
Tavana & Co.
Chartered Accountants
Toronto, Canada
Tel.416-229-2221
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• The Great Recession of 2007
The Great Recession of
2007-2009, coming on the heels of
a spending binge fueled by a
housing bubble, so far has
resulted in over $7,300 in foregone
consumption per person, or about
$175 per person per month. The
recession has had many costs,
including negative impacts on
labor and housing markets, and
lost government tax revenues.
In the mid-2000s, an enormous
speculative housing bubble
emerged in the U.S. An
accommodative interest rate
environment, lax lending
standards, ineffective mortgage
regulation, and unchecked growth
of loan securitization all fueled an
overexpansion of consumer
borrowing. An influx of new and
often unsophisticated homebuyers
with access to easy credit helped
bid up house prices to
unprecedented levels relative to
rents or disposable income.
Equity extracted from rapidly
appreciating home values provided
households with hundreds of
billions of dollars per year in
spendable cash, significantly
boosting consumer spending.
The consumption binge was
accompanied by a rapid increase
in household debt relative to
income and a decline in the
personal saving rate.
The persistent rise in home values
encouraged lenders to ease credit
even further on the assumption
that house price appreciation
would continue. But when these
optimistic projections failed to
materialize, the bubble began to
deflate, setting off a chain of events
that led to a financial and
economic crisis. The "Great
Recession," which started in
December 2007 and ended in
June 2009, was the most severe
economic contraction since 1947
as measured by the
peak-to-trough decline in real
Continued ... ..
•
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• the Generalist, a
one-page monthly
publication of the accounting firm of
A.R. Kakhsaz Company, is in its 17th
year of providing information, presented
fairly and accurately, from sources we
can depend upon and trust.
... .. Continued
GDP. It triggered a dramatic shift
in household spending behavior.
Real personal consumption
expenditures trended down for six
quarters, the saving rate more than
tripled from around 2% to over 6%,
and households began a
sustained deleveraging process
that is still under way.
• 51% of U.S. households owed no
federal income-tax for 2009. Some
30% of all households got back a
check for their full income-tax bill
and more due to refundable tax
credits, such as earned income
credit, home buyer's credit, the
making work pay credit and others.
• Today, some 50.5 million
Americans are on Medicaid, 46.5
million are on Medicare, 52 million
on Social Security, five million on
SSI, 7.5 million on unemployment
insurance, and 44.6 million on
food stamps. Some 24 million get
the earned-income tax credit (an
income supplement). By 2010
such payments to individuals were
66% of the federal budget, up from
28% in 1965. Now, $2.1 trillion a
year is spent on these programs,
and 75 million baby-boomers are
only starting to retire.
• The cost of imports to the U.S.
from China continues to climb.
Chinese import prices are 3.1%
higher than they were a year
earlier. The cost of U.S. imports
from all countries is up 14%
from a year earlier, largely due to a
nearly 50% increase in prices of
imported petroleum.
• We see more in numbers
than just numbers…
Ali R. Kakhsaz
www.arkcpa.com
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