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It could take years for U.S. households to recover from the housing bubble burst that triggered the financial crisis and eroded both family wealth and consumer confidence.Scott Olson/Getty Images

What if it were almost free to borrow money – but nobody dared take out a loan?

Once the swaggering spendthrift of the global economy, the American consumer is now too fearful and debt-burdened to borrow and spend, and doesn't appear poised to bounce back any time soon.

Signs that the still-struggling U.S. economy is weakening further prompted U.S. Federal Reserve Board chairman Ben Bernanke to announce earlier this week that short-term interest rates will remain at or near zero per cent for two years. That would mean that, by 2013, the Fed's emergency measures will have been in place for five years.

But as the market rout Wednesday suggested, the central bank's moves won't address some of the underlying problems of the U.S. economy, notably high unemployment, and may not be enough to get recession-scarred U.S. companies and consumers spending again.

It could take years for U.S. households to recover from the housing bubble burst that triggered the financial crisis and eroded both family wealth and consumer confidence. Three years after the financial crisis that became the Great Recession, unemployment remains high, income growth is anemic and debt loads are hefty, though down somewhat from the peak of 2008.

The pledge of low rates for two years – a commitment so long that three members of the U.S. central bank's policy-setting panel dissented – was aimed at soothing markets by reassuring investors and companies that they would have that long to borrow cheaply, and repay debts at those rates.

That will only have an impact if companies and consumers are willing to spend. And American consumers simply aren't in a position to crank up spending. That's leading to concern that the U.S. economy may see a repeat of the lost decade in Japan, when a plunge in real estate and the stock market sent Japanese consumers into a funk from which they have still not emerged.

"Much like the U.S., Japan had a big asset bubble that burst, including the housing market, and that has basically hindered the Japanese economy for 10 to 20 years," said Paul Dales, senior U.S. economist at Capital Economics in Toronto.

"The legacy of the housing boom could go on for a similar time in the U.S."

Mr. Dales noted that U.S. household debt remains at an elevated 130 per cent of disposable income – down from the peak of 140 per cent, but well below the more sustainable 100 to 110 per cent. In such a climate, low interest rates are necessary for an eventual economic recovery, but may not be as effective in stimulating demand as they have been in past recessions.

"The deleveraging process that U.S. households started to go through once the recession started has got some way to run yet, so households are probably going to focus on saving and paying down debt rather than boosting their spending," he said.

The housing market remains under pressure, with the U.S. National Association of Realtors reporting yesterday that prices either were flat or fell in 73 per cent of metropolitan markets. The association says home affordability is now as good as it has ever been – with prices and mortgage rates having declined and incomes seeing small gains.

But the lack of a recovery in the housing market is evident in the financial results of Atlanta-based Beazer Homes USA, one of the 10 largest U.S. home builders.

Beazer reported a loss of $53.8-million (U.S.) in the three months ended June 30, more than double its 2010 quarterly loss of $23.4-million.

"There is no question that the fiscal uncertainties in the United States and around the world have contributed to a decided lack of consumer confidence," Beazer's chief executive officer Allan Merrill said on a conference call this week.

"Job growth and consumer confidence have to be pillars of any housing recovery, so until they both show signs of strengthening, we expect the level of new home sales to remain suppressed."

The U.S. jobless rate has been above – or just below – 9 per cent for 27 months, the longest stretch of such elevated unemployment since the Great Depression in the 1930s. Some 14 million Americans are unemployed and still looking for work, but millions more have given up the hunt and dropped out of the labour force, so they don't get counted in the official unemployment numbers.

Nevada has the highest U.S. rate at 12.4 per cent, but California is not far behind, at 11.8 per cent. Sparsely populated North Dakota leads the country with a 3.2-per-cent jobless figure.

U.S. consumer confidence has been falling since late spring, as higher gasoline and food prices cut into disposable income, and job growth stalled. And the recent decline in the stock markets and political battle over the debt ceiling will serve to further sap confidence, said Chris Christopher, economist with IHS Global Insight in Lexington, Mass.

"When the equity markets are in such turmoil and the whole thing with the debt ceiling is lingering on as well, consumers get very nervous," he said. The economist noted that the U.S. savings rate has climbed this year, meaning people are saving and paying down debt.

With weak consumer demand, the restructuring of key manufacturing sectors that began last decade continues to play itself out.

In the auto industry, for example, there are job losses still to come as plant closings that were announced two or more years ago actually happen this year.

One of those is in St. Paul, Minn., where Ford, the only one of the Detroit Three not to go through Chapter 11 bankruptcy protection, will close a compact pickup truck factory in December.

That means Sharon Anderson-Shearon, the financial secretary of United Auto Workers local 879, will be out of work.

Ms. Anderson-Shearon, 53, has been preparing for that day since word first came out in 2006 that the St. Paul plant was in danger.

"I've been cutting back for five years," she said Wednesday. That means no more travelling to Europe or an annual trip to Florida with her three children and no more evenings out at local restaurants.

She's well aware of how the elimination of 2,000 jobs paying more than $30 an hour (there are 750 left working on a single shift) will ripple through the local economy.

"When you have a manufacturing job that pays a decent wage, people have discretionary income. People take that discretionary income, they spend it on motorcycles, they spend it on snowmobiles … and that's what stimulates the economy."

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