Larry Summers Welcomes Ben Bernanke To The Blogosphere The Only Way He Knows How

Very nice. Now let the grownups do the talking.

Which is to say, rudely. Or, perhaps more charitably, with an aggressively polite explanation of how he, Larry Summers, is right, as he always is. What does it all mean? Well, it means we are screwed, although not as screwed as the Europeans and Japanese—but their being screwed is going to screw us, too. It may also mean that someone else should be running the Fed, but Larry’s going to let you draw your own conclusions on that one.

I have argued that the 2003-2007 recovery and quite possibly the late stages of the 1990s recovery were powered in significant part unsustainable financial conditions. Ben is skeptical...I think that it will be hard to escape the conclusion that household debt grew at an unsustainable pace in the decade before the great financial crisis and that this was an important spur to growth. And I am fairly confident that wealth effects associated with a booming stock market were important in the late 1990s...Throughout the industrial world the vast majority of the revisions in growth forecasts have been downwards for many years now. So, I continue to urge that it is worth taking seriously the possibility that we face a chronic problem of an excess of desired saving relative to investment. If this is the case, monetary policy will not be able to normalize, there will be a continuing need for expanded public and private investment, and there will be a need for global coordination to assure an adequate level of demand and its appropriate distribution.

On Secular Stagnation: A Response to Bernanke [larrysummers .com]
Why are interest rates so low? [Ben Bernanke's Blog]