THE DAILY CHART: How long does recovery take?

Speculation abounds over how long it will take the US to recover from one of the worst recessions in its history, but few have sought to explain what exactly constitutes a 'recovery'. Stable GDP growth has been greeted as a sign of a nascent rebound in the US, but employment rates – currently hovering around double digits – offer little solace. A new research paper uses comparisons with previous credit boom-and-bust cycles to estimate how long it will take the world's biggest economy to truly recover. Given the US recession was born from a credit crisis, this analysis may offer one of the clearest estimates yet.


Using domestic credit-to-GDP ratios from before and after the world's biggest credit booms, US-based economists Carmen and Vincent Reinhart calculate that banking credit booms last for an average of nine years and are followed by periods of deleveraging that can take up to seven years. While Japan was able to return to stable credit-to-GDP ratio just two years after its 1992 crisis, Thailand's period of deleveraging lasted for 10 years – a year longer than the country's credit boom. So, perhaps the question is not how long it will take the US to recover, but rather how long it will take the country to overcome the lasting effects of its addition to credit.