It’s dangerous to express optimism about the economy these days. Europe’s financial markets remain fragile. China, which supports much of the world’s economy through imports, is too dependent on highly indebted, state-subsidized corporations. The Federal Reserve may reverse its low-interest-rate policy. Nevertheless, there is at last some fundamentally positive economic news to be reported: the United States may be on the verge of GDP growth rapid enough to bring down the unemployment rate substantially.
The nation’s debt as a percentage of GDP has stabilized and is forecast to begin falling in 2015, while consumer debt has already dropped significantly since the financial crisis set in. Research by the Harvard economists Kenneth Rogoff and Carmen Reinhart shows that recessions caused by financial bubbles take a longer time to recover from, as governments and consumers pay off debt rather than spending. This has certainly been true since the collapse of the housing bubble. But there is reason to believe that U.S. households and government have returned themselves to manageable levels of debt.