US' consumer nightmare continues

The third point is more diagnostic: The shockingly anemic pattern of post-crisis US consumer demand has resulted from a deep Japan-like balance-sheet recession. With the benefit of hindsight, we now know that the 12-year pre-crisis US consumer-spending binge was built on a precarious foundation of asset and credit bubbles. When those bubbles burst, consumers were left with a massive overhang of excess debt and subpar saving.

The post-bubble aversion to spending and the related focus on balance-sheet repair reflect what Nomura Research Institute economist Richard Koo has called a powerful "debt rejection" syndrome. While Koo applied this framework to Japanese firms in Japan's first lost decade of the 1990s, it rings true for America's crisis-battered consumers, who are still struggling with the lingering pressures of excessive debt loads, underwater mortgages, and woefully inadequate personal saving.

Through its unconventional monetary easing, the Fed is attempting to create a shortcut around the imperative of household sector balance-sheet repair. This is where the wealth effects of now-rebounding housing prices and a surging stock market come into play. But are these newfound wealth effects really all that they are made out to be?

Yes, the stock market is now at an all-time high but only in current dollars. In real terms, the S&P 500 is still 20 percent below its January 2000 peak. Similarly, while the Case-Shiller index of US home prices is now up 10.2 percent over the year ending March 2013, it remains 28 percent below its 2006 peak. Wealth creation matters, but not until it recoups the wealth destruction that preceded it. Sadly, most American households are still far from recovery on the asset side of their balance sheets.

Moreover, though the US unemployment rate has fallen, this largely reflects an alarming decline in labor-force participation, with more than 6.5 million Americans since 2006 simply giving up looking for work. At the same time, while consumer confidence is on the mend, it remains well below pre-crisis readings.

In short, the US consumer's nightmare is far from over.

Spin and frothy markets aside, the healing has only just begun.

Stephen S. Roach, a faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of The Next Asia. Project Syndicate