I'm not as sure as I was earlier about the inevitability of higher interest rates. Steve Keen, an Australian academic economist who is on my "Blogs I Like" list, has persuasively written about the effects of de-leveraging the economy over time. Other people mention de-leveraging but no one I have seen has explained it as clearly as Keene, at least to my economics-challenged mind.
In this paper on his website Keen is talking about the Australian economy, but the lessons and playout will be similar everywhere. He thinks it will take years to get the debt down to manageable levels, and that the process could lower GDP growth possibilities by 3-5% per year!! He uses the examples of the 1890's and 1930's in Australia. It's a good but challenging read and quite sobering.
If Keen is correct, the authorities in most places, notably the US, haven't even accepted the idea that deleveraging must occur at all. We'll just add scads more of debt, sprinkle it about, and all will be well.
John Hussman, also on my list, this week has similar ideas about the potential "growth" of the next decade. He sees a maximum growth probability of less than 3% per year for a decade.
Both of these writers and economists are basically describing a Japanese-like outcome with minimal growth and probable recurring recessions. This is a far cry from the happy face "green shoots" BS that is sustaining us currently. It suggests that growth will be slow with recurrent recessions. This is not an inflationary outcome with high inflation and high interest rates!
Of course this is not a definitive outcome, just economic opinion. I could personally "live with" a non-inflationary era, but it would be a tough road for civilian societies in quite a few ways which would impact us all.
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