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2007 OECD Economic Surveys: United States 2007

image of OECD Economic Surveys: United States 2007
This edition of OECD's periodic survey of the US economy assesses recent economic developments and examines challenges the US faces including employment limits that are slowing economic growth, fiscal sustainability, household debt, improving primary and secondary education, and financing higher education. This book includes StatLinks, URLs under tables and graphs linking to Excel® spreadsheet files containing the underlying data.

"Has an international bureaucracy ever made so much sense in so few words? If so, I missed it."-Greg Mankiw

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Household debt

Household debt has risen particularly fast over the past decade in the United States. The outstanding amount of household financial liabilities increased from 89% of personal disposable income in 1993 to 139% in 2006, an unusually large rise by historical standards. Although similar run-ups occurred in other OECD countries, the increase was particularly substantial in the United States. The run-up in debt largely reflected the buoyancy of the housing market, the use of new financial instruments to extract equity from houses and the market entry of lenders willing to extend loans of lower credit quality. There has been recently a sharp rise of delinquencies among subprime borrowers, leading to financial difficulties among specialised lenders, which has so far not spread to other markets. US policies have traditionally played a key role in encouraging affordable homeownership. The tax system favours investment in housing, but at the expense of other household assets, and it mostly benefits highincome families rather than other house buyers. The government sponsorship of mortgage enterprises has also done little to promote affordable homeownership, but resulted in the accumulation of large mortgage loan portfolios, which pose a risk to financial stability and represent large contingent liabilities for the taxpayer. Policy recommendations are suggested to reduce these distortions.

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