Tilting at growth windmills

Stephen Roach decries the trend towards negative rates; says that central banks are in crisis and hence the world economy cannot be far behind. For once, I agree with him.

However, I am sceptical of his prescription. He wants countries to focus on boosting aggregate demand – through a more active fiscal policy. Do they or did they really have scope for that? The truth is that they have overdone all aspects of growth – demand-side (government debt has exploded in the last thirty years), supply-side (credit growth from banks and non-banking and financial institutions) and asset-price transmission (serial bubbles from real estate to technology stocks to real estate, Emerging market stocks, bonds and commodities to stock buybacks and new technology plays). There is really nothing left to stimulate – supply-side or demand-side. That is the hard truth. Perhaps, one is slightly less stupid and less unrealistic than the other.

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