If Larry Summers is correct about secular stagnation, the natural interest rate is negative and interest rates at current levels are too high to ensure that planned savings match planned investment in a way that generates full employment.
So what does one do about it?
In an op-ed for the Washington Post earlier this month Larry Summers identified three possible responses. Read more
In the last few weeks the “Is QE deflationary?” debate has fused with the “What’s the natural rate of interest anyway?” and the “Is it really all about the risk premium?” conversation.
Many important insights have been offered by a whole host of people. A notable development, however, came in the shape of Tyler Cowen’s post on negative T-bill returns in which he considered the phenomenon of T-bill “entrance fees” during a zero-rate climate and how this can take returns for many investors into negative nominal territory, while providing advantages to those with access to “special technologies’” even when official rates are very mildly positive. Read more
David Roche and Bob McKee at Independent Strategy have put out a strongly worded riposte to Larry Summers’ argument that the world may be beset by secular stagnation.
From the note, their main points are: Read more