New studies show heavy debt burdens are holding areas back

New studies highlighted in a New York Times article today show that “…the recent recession may have brought about an enduring shift in the geography of American growth.” It goes on to say that, “Various kinds of economic activity, including auto sales, fell more sharply and are rebounding more slowly in areas that had the highest debt burdens at the peak of the boom in 2006, according to a series of recent studies.”

The accepted theory had been that those areas hit hardest by the recession would also have the most vibrant recoveries. This appears not to be happening this time. The story sites Amir Sufi, whose study shows that, “The sharpest drops happened in areas where people reported little income beyond their homes.” Basically, the same areas where you had a boom of new home owners and house prices skyrocketing, you also saw the largest numbers of people with their house as their only asset, and plenty of debt financing tied to that asset. When the boom went bust, those areas where the residents had high debt burdens and lost the value of their only asset, are not surprisingly experiencing slower growth, and probably will be for years to come.



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