It occurred to me after reading the following paragraph from this commentary by Ambrose Evans-Pritchard at the Telegraph the other day:
Former US Treasury Secretary Larry Summers says the US is trapped in “secular stagnation”, a bad equilibrium where the interest rate needed to keep growth alive may be as low as minus 3pc.
…that there must be something fundamentally wrong with a financial system and economy where negative rates of interest are necessary.
You don’t hear a peep about the idea that there might be something fundamentally wrong from the mainstream economics/finance crowd and Pritchard is clearly part of that group as should be clear after reading the paragraph that followed:
It takes fresh bubbles to keep the show on the road, and it threatens to become “chronic and systemic”. This is our brave new world. If Mr Summers is right, we need to go to the next stage of QE. Rather than relying on more bond purchases, the stimulus could be injected into the veins of the economy, or into the “income stream” in the words of the late Milton Friedman.
Once again, the experience of Japan’s Takahashi Korekiyo in the 1930s is cited as a shining example of what unlimited quantitative easing can accomplish. Once again, it’s worth providing the additional context per Takahashi’s Brilliant Feat … and Demise.