Wednesday, December 10, 2008

Debt and stagnating US economy

I had blogged earlier on the inevitability of a period of slow growth to purge out the excesses that had built up in the economy during the past two decades. Oil Drum has an excellent article which claims that "since 2001, we have had a considerable amount of government encouraged debt, to try to get the economy to expand faster than its natural rate". The graphic below shows that, adjusted for the steep increase in debt, the economy has hardly grown since 2000. Winding down the huge debts accumulated so far will be one big challenge, which is why Ken Rogoff's idea of stoking inflation may be a good place to start?

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