Such economic success as the industrial world has enjoyed in recent decades has reflected a combination of very low real rates, big budget deficits, private leveraging up and asset bubbles.(Summers didn't really ask why, but he should have.)
No one from whom I have heard doubts the key conclusion that a combination of meaningfully positive real interest rates and balanced budgets would likely be a prescription for sustained recession if not depression in the industrial world.
Alan Greenspan:
[Among the] reasons to expect demands to moderate and economic activity to settle back... [is that] many households have built up sizable debt burdens in recent years, and coping with debt repayments could hold down their spending.
Debt goes up, Greenspan says, and the repayment takes a bite out of aggregate demand. He's right.
Maybe the problem is the word "repayment". Maybe it makes you think that debt goes away after a while so it isn't a problem. Yeah but it doesn't work like that. We borrow faster than we repay. So as a rule, debt is always increasing.
Greenspan said "households have built up sizable debt burdens in recent years". He said it in 1996. But household debt kept growing. All the debt kept growing, till 2008. It wasn't only household debt. And then we had really sizeable debt burdens.
These days, debt is growing again. But not as fast as before, so growth remains weak.
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