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To fix the economy, you have to fix debt - William White

Is normalization in monetary policy doable?

  • There is no return back to any form of normalcy without dealing with the debt overhang. This is the elephant in the room. If we agree that the policy of the past thirty years has created an ever growing mountain of debt and ever rising instabilities in the system, then we need to deal with that.


  • In theory, there are four ways to get rid of an overhang of bad debt. One: Households, corporations and governments try to save more to repay their debt. But we know that this gets you into the Keynesian Paradox of Thrift, where the economy collapses. So this way leads to disaster. Two: You can try to grow your way out of a debt overhang, through stronger real economic growth. But we know that a debt overhang impedes real economic growth. Of course, we should try to increase potential growth through structural reforms, but this is unlikely to be the silver bullet that saves us. This leaves the two remaining ways: Higher nominal growth – i.e. higher inflation – or try to get rid of the bad debt by restructuring and writing it off.

Which way will it be?

  • Probably a combination, but they are all very hard to achieve. It’s fairly obvious that a number of policy makers will try to inflate the debt away. This was how they did it after World War II, through what we now know as financial repression: Get inflation above interest rates, and then the debt ratio gradually comes down. It’s just very hard to engineer the kind of inflation that is just right for this process.

William White criticizes the central banks: “They have pursued the wrong policies over the past three decades, which have caused ever higher debt and ever greater instability in the financial system.”

Interview with William White -

William White is always worth listening to - and clearly he is very highly qualified to understand in depth, what is happening in the global economy. His assessment of the Global Financial and monetary system, is always about as good as you will get. Very clear and very succinct.

  • William R. White (born 1943) is a Canadian economist who was the chairman of the Economic and Development Review Committee at the Organisation for Economic Co-operation and Development (OECD) from 2009 to 2018. He is famous for flagging the wild behaviour in the debt markets before the global storm hit in 2008 (Great Recession).

  • In 1994, he joined the Bank for International Settlements (BIS), the Swiss-based bank of central banks, as manager in the Monetary and Economic Department. From May 1995 to June 2008, he served as its Economic Adviser and Head of the Monetary and Economic Department. He retired from the BIS on 30 June 2008.

Note: In many ways, William White is coming to the same conclusion as Ray Dalio.

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