Why Deleveraging Is The True Culprit Weighing On Global Growth

Persistent low and negative interest rates have prompted fears that the global economy has entered a period of chronic weak demand, famously described by former U.S. Treasury Secretary Larry Summers as “secular stagnation.” It is easy to see why people are concerned: Since the 2007–2008 global financial crisis (GFC), monetary policy has been continuously loosened to prop up growth—with disappointing results. The proximity of policy rates to the lower bound also means there is little policy space should we encounter a negative demand shock, leaving central banks with a major headache.