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Earning power lost to Great Recession: $50K or more

The Dallas Fed tried to calculate the impact in dollars and cents. Its report also acknowledges the profound psychological costs of the lingering downturn.

By Sep 13, 2013 10:54AM

This post comes from Christine DiGangi at partner site logoAs a result of the Great Recession, the average American household will have lost between $50,000 and $120,000 in earning potential, according to a letter from the Federal Reserve Bank of Dallas.

Financial planning © Yellow Dog Productions, Lifesize, Getty ImagesThose figures assume that the country's economic output eventually returns to its pre-recession trend path. The estimated loss nationwide is between $6 trillion and $14 trillion, and the Dallas Fed partially attributes that wide range to uncertainty of how long the recovery will take.

The letter also notes the losses could be greater than $14 trillion -- possibly twice as much -- when accounting for the psychological impact on Americans and if the crisis permanently lowers the path of future output, in comparison to other post-recession rebounds.

In addition to lost earning potential, U.S. households' net worth declined $16 trillion from the third quarter of 2007 to the first quarter of 2009 -- a 24% dive. However, the Fed says it’s more difficult to quantify how the pain of the economic downturn will linger in the minds of Americans -- and furthermore, how it could impact their consumer behavior.

The larger, lasting effects?
Further losses could result from the psychological effects of stress, reduced job security and unemployment-induced declines in self-worth. The letter mentioned other losses of human capital, including reduced economic opportunity and skill atrophy among the jobless and underemployed, as well as the economic impact of a lost public trust and cost of government intervention in the economic crisis.

The high end of the loss estimate ($14 trillion) is nearly as much as the country’s annual economic output, and lingering trauma may lead to the equivalent of two years’ foregone consumption, the Dallas Fed said.

To prevent future economic crises and consumer adversity, the Dallas Fed made a recommendation:

“Given this range of estimates, the tepid economic recovery and the collateral damage sustained, it is crucial to implement effective policies that avoid future episodes whose magnitude could exceed even the staggering costs and consequences of the most recent financial crisis.”

The Fed didn't specify what those policies should be. Any suggestions?

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Sep 13, 2013 2:19PM
Just one more reminder to younger folks especially - when you do secure a job, work hard to live below your means and stay out of revolving debt, save a healthy emergency fund and, because Social Security may not be there in full force, save a good amount toward your retirement. If YOU take control to the best of your ability, you'll be able to better ride out / brace yourself for recessions (they'll happen again) while relying less on bank/political whims.
Sep 13, 2013 11:44AM
Earning power has been lost to Greedy Corporations that prefer to pay slave labor wages overseas. Hard to get that back if you don't have the stones to fight for anything. Ever.
Sep 13, 2013 1:10PM

Banks and greed got us to this...Though the Democrats will have you believe it was Bush! So tell me what Obama has done? He has spent almost 4 times what Bush did(including iraq & afghanistan) and we have less.. so where has Obama spent the money? Food Stamps, Welfare. cell phones, Unions, Democrat agencies like ACORN & Planned Parenthood. All the time saying he is trying to build up the middle class of America. When, in fact, he is tearing us down and taking the 'United" out of the country!

And these same idiots want to put Hillary in the whitehouse after him! What does it matter, they're dead Hillary and her cigar tube Bill need to go to mexico with obama and play. Take reid & Pelosi with you!

Sep 13, 2013 1:37PM
No use in adding it up yet .......... wait until it is over.
Sep 13, 2013 1:40PM
Gee I wonder how much has been lost to printing more and more fiat currency known as the Federal Reserve Notes?
Sep 13, 2013 1:54PM
The solution is simple:

1.  Break up the "too big to fail" corporations into pieces small enough that they can fail and not take everything down with them.

2.  Execute the executives who's incompetence enabled the crash to happen.

3.  Raise interest rates to a realistic level: slightly higher than the actual rate of inflation (including energy, food, housing, telecommunications, etc.)

4.  Increase the capital gains tax rate to be the same as the tax rate for earned income (to reduce extremely risky "get rich quick" investment betting)

5.  NEVER bailout another bank!!!

Sep 13, 2013 2:54PM
The only thing I don't understand is why the American people haven't taken up arms and executed the fraudsters that created this mess. They should be hanging by their necks from the lamp posts on Wall St. Of course Eric Holder and Lanny Breur haven't even tried to prosecute a single one...why? Because these are their friends, the same people they used to work for doing white collar criminal defense. Hooray for Obama the transparent!
Sep 13, 2013 3:05PM

You must be kidding me, where do these people live, not in Mainstream America when they make a statement like this: "Further losses COULD result from the psychological effects of stress, reduced job security and unemployment-induced declines in self-worth."   Plus this lame statement: "the Fed says it’s more difficult to quantify how the PAIN of the economic downturn will linger in the minds of Americans."


I'm not an Isolationist but our Government should be more concerned about things at home for the 99% or the second American Revolution will take place!

Sep 13, 2013 2:43PM

After 15 years of 'easy' money...then a serious recession...people have forgotten that you have to work hard for success.  Is it any more difficult today than it was in the Mid-70s to Mid-80s?  I don't think so. 


Has the playing field changed? Yes.  There's no debate that the wealthiest are increasingly becoming weathier faster.  Is that their fault?  I don't think so...greed/success/winning is human nature.  If we, the middle class, are unhappy about this we need to quit whining and get smarter, adapt and work together to change this.  Don't look to the government to level the playing field.  Look to yourself and your neighbors.  There's still plenty of opportunity in this nation and around the globe.

Sep 13, 2013 7:15PM
I'm retired on fixed income. However I still pay taxes. I can't understand how my small house just doubled in value.. I live in Allegheny County, Pa.  Last year my tax on my 8000 sq. ft. lot doubled in value from $20,000 to $40,000. My 40 year old small  house (1200 sq.ft.) increased also from $72,000 to $110,000. This all in one year. I appealed but lost because this county is run by a bunch of  thieves. Hell, the whole State is run by thieves! Unfortunately I must now give up the house I worked for all my life. I can't afford the taxes at this rate. I am a Vietnam Veteran and was treated like **** back then, and now I feel the same. I'm beginning to really hate this country.
Sep 13, 2013 2:57PM

   West,  Your right about a lot of this stuff. Don't know about the black and white thing but in the end people of all incomes levels were jumping on the no down ARMS mortgage to buy houses they couldn't otherwise afford, encouraged by the fast growing equity, 20-30% per year instead of the normal 6-7%. Anyone who thinks that kind of situation is sustainable does not  have their heads on straight. Yup, can remember banks being threatened with suit if they did not ok those loans. Clinton & Ruben created a insurance program to help with what they new would be increased mortgage failures, credit defaults, turned out to be totally short sighted. Many people were using their new found equity to buy toys or Escalades they couldn't otherwise qualify for and getting a tax deduction for doing it. This is wrong, those deductions should only go for home improvement loans as was intended. Lots of flippers as well. For these people I feel little pain.

    Banks got a good return before the wheels came off, 17% margin instead of the normal single digit returns at a time when hated Exon because the media was reporting their billons in earnings but not on a percentage margin basis at 5.9%. A great and moral idea that made them feel warm a fuzzy al over and one few dare vote against for fear of retaliation. I would feel better about gov. if they would admit they thought they were doing the right thing but were wrong and quit blaming the banks.

Sep 13, 2013 4:39PM
If you haven't been paying Attention, Fannie and Freddie total exposure to Sub prime, less than $300Billion. Amount borrowed from the US treasury, $187 Billion.

If you haven't been paying Attention. Fannie and Freddie have PAID back, $146Billion of the $187 Billion that is has borrowed. At the current rate of payback, the Debt will be paid in full in less than 12 months, if not far sooner.

Now you can say Obama is in Bed with Big Banks, and that wouldn't be far from the truth. However, to think this financial Crisis wasn't cooked up by Bush and Company, then you are really smoking the good stuff. This is a two party problem with ZERO third party solutions.

So sure go with the same idiots that want to put back the same party that created this mess to begin with. That's what this country has been doing for decades. Both parties are laughing all the way to the bank, Literally.

Sep 13, 2013 6:37PM
Note in these "mean" averages that the top 5% has been gaining an average 10% in income right through this Great Recession of the Non-Wealthy.  So the hit to the median family is even greater.
Sep 13, 2013 4:50PM
Mortgage Debt outstanding, all holders, Q1(2013) around 13 Trillion Dollars. Derivative Markets, 500-700 Trillion Dollars.

Fannie and Freddie combines exposure to Sub prime, less than 300 Billion Dollars.

Fannie and Freddie borrowed amount from Treasury, 187 Billion Dollars.

Amount paid back so far, 146 Billion Dollars.

So sure, stop whining and start acting like you have a freaking clue. Clearly one particular poster has not a clue to what happened nor the dollar amounts associated. All this propaganda is paid and bought for by the Big Banks. My how they are getting a bang for their buck. Big Banks control the Government. The Government didn't force Big Banks to do a darn thing concerned who got a Loan. Yet that is exactly what fools will tell you, over and over again.

Sep 13, 2013 2:11PM
Suggestions....Ya....Dump the Federal Reserve !
Sep 13, 2013 6:58PM
Execute all Republicans and conservative commentators!
Sep 13, 2013 2:12PM
haha, not me!  I was one step ahead. 
Sep 13, 2013 6:06PM
Let's not forget all the debt that Obama has racked up. The interest on that alone will bury us!
Sep 13, 2013 1:51PM
First, Bush and Poulson helped cause it (now Poulson is profiting on it in his book), then Obama has failed to fix it !   What a fiasco ... except for Poulson profiteering.
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