The readers of the Fiscal Times learn what everyone looking at the alphabet-soup of back-door taxpayer theft (or, as Ben Bernanke calls them, facilities) knows:
There are many ways policy could have been improved; providing more help for state and local governments is high on the list, but I’ll focus on another way: using fiscal policy to help households make up for losses from the recession. This is an important, but too often ignored aspect of recovering from what are known as “balance sheet recessions.”…
The effect on bank balance sheets also varies with the type of recession, and a financial collapse brought about by bad loans is particularly severe. The present recession is an example of this, and policy has done a good job of preventing even worse problems from developing by rebuilding financial sector balance sheets through the bank bailout and other means.
But household balance sheets have not received as much attention. We could have helped households rebuild their balance sheets, and this would have helped banks by lowering the default rate on loans. Instead, we left households to mostly solve their problems on their own, and then helped banks when households could not repay what they owed. [emphasis mine; link his]
At his own blog, Professor Thoma ends—as one should—with one of his better jokes, with a perfect Steven Wright delivery:
[W]e can still learn something and improve policy the next time a balance sheet recession hits the economy.
Policy created and maintained as badly as it has been for the past three years must view that summary as a feature, not a bug.
UPDATE: I see RDan mentioned this earlier today. Is the term “balance sheet recession” not so common as I believe it is?