By Matt McDonald, (202) 822-1205, mmcdonald@hamiltonps.com

Today, HPS releases the first report in a series of three intended to jumpstart a discussion of the economic policy path forward, both in terms of politics and policy.

This report is intended to provide an overview of our current economic challenges and a view of why it has been so difficult to restart growth. We find:

  • The primary cause of the economic crisis in 2008 was a credit bubble, which caused inflated asset prices and elevated levels of debt, seen most notably in the housing market.
  • When the credit bubble burst during the financial crisis, unemployment rose and asset prices fell, but the elevated levels of debt remained.
  • Since the financial crisis in 2008, households and financial institutions have been working to reduce the debt accumulated in the years leading up to the collapse. This process has become known as “deleveraging” and generally involves the use of income to reduce outstanding loans rather than fund spending or investment.
  • As individuals simultaneously increased savings to pay down debt, reduced demand prolonged the recession and tempered economic growth, again impacting individuals and creating a vicious circle that impeded true recovery.
  • These and other factors have contributed to the extended economic stagnation we are currently experiencing. Our economic output (in real GDP) is 8 percent below trend, with unemployment elevated above 9 percent, and expected to remain there until 2013.

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Matt McDonald is a partner at Hamilton Place Strategies and a veteran of two Presidential campaigns and the White House.ᅠ Prior to joining HPS, Matt worked for McKinsey and Company. ᅠHe holds an MBA from MIT’s Sloan School of Management and an undergraduate degree in economics from Dartmouth College.

HPS the Path Forward – Current Economic Challenges by Hamilton Place Strategies