I must admit being stumped for a response to this statement in a Bloomberg Op.-Ed:
Economists at Oxford Economics Ltd., a U.K.-based research group, say policy makers may be damping hopes that last year’s near-halving of crude prices would spark worldwide demand. “With rates this low, even good news has a sting in the tail,” John Bulford and Gabriel Sterne, economists at Oxford, said in a report to clients last week. “The expansionary impact of the oil-price shock is dampened to some extent because of the limited capacity of central banks to loosen monetary policy.” [Link].
Central banks are unable to cut rates because they have already cut rates to zero! Is that not stimulus enough? The fact that a plunge in crude oil to the extent of 50% has not left most countries in the world feeling cheerful should tell something about the state of underlying economic vigour. But, thinking has been so clouded by debt that very few are seeing clearly.
They are being bogged down by all the debt that they accumulated in the gung-ho years. In fact, th gung-ho years felt gung-ho because of debt creation. Debt and economi growth reinforced each other. Far from deleveraging, central banks and policymakers are encouraging more borrowing. Debt-induced spending cannot conjure up economic growth for ever. It has done already. Existing debt burdens have to be extinguished considerably before the next wave of economic growth can commence.
What the world has done in the last six years is to take on more debt, in response to the debt-induced crisis of 2008. They have to wait a very long time for the next growth wave to arrive. Cheap oil is unlikely to spark a growth revival. It is a symptom of the low economic growth, induced by the dead-weight of debt.