I started tracking an odd statistic that I made up in the aftermath of the last recession called the ‘Mortgage to Growth Gap’ (MGG). At the time, a lot of pundits I respected where saying that American consumers were spending right through the recession in a way that hadn’t happened before. While this was not entirely true (real retail sales were negative in 2001), looking to verify that data did help me find this statistic.
Basically, the MGG demonstrates that in an economic upswing, people load up on mortgage debt (the growth in mortgage debt powers ahead of the growth in nominal GDP). However, when recessions occur, people cut back on their borrowing – the growth in mortgage debt lags the growth in nominal GDP.
In 2001, that didn’t happen. Americans kept piling on debt, even after the recession hit, helped, of course by ridiculously low interest rates. Hence, the shallow recession. But, this time….??