Experts from a range of political leanings, speaking at American Economic Association's annual gathering, were in agreement when it came to the chances for a robust and sustained expansion in 2010. It won't happen. Many predicted U.S. gross domestic product would expand less than 2% per year over the next 10 years. That stands in sharp contrast to the immediate aftermath of other steep economic downturns, which have usually elicited a growth surge in their wake. Housing was at the heart of the nation's worst recession since the 1930s, with median home values falling over 30% from their 2005 peaks, and even more sharply in heavily affected states like California and Nevada. The decline has sapped a principal source of wealth for U.S. consumers, whose spending is the key driver of the country's growth pattern. The steep drop in home prices has also boosted their propensity to save. "It's very hard to see what will replace it," said Joseph Stiglitz, Nobel laureate and profe ssor of economics at Columbia University. "It's going to take a number of years." One reason is that U.S. consumers remain heavily indebted. Another is that many of the country's largest banks are still largely dependent on funding from the U.S. Federal Reserve and the implicit backing of the Treasury Department. He cited government programs giving large financial institutions access to zero-cost borrowing as artificially padding their bottom lines. "There's something of an illusion of profitability," he said.
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