Rajan, Raghuram.
Two competing narratives of the sources of the crisis, and attendant remedies, are emerging. The first, and the better known diagnosis, is that demand has collapsed because of the high debt build up prior to the crisis. The households (and countries) that were most prone to spend cannot borrow any more. To revive growth, others must be encouraged to spend – surplus countries should trim surpluses, governments that can still borrow should run larger deficits, while thrifty households should be dissuaded from saving through rock bottom interest rates. Under these circumstances, budgetary recklessness is a virtue, at least in the short term. In the medium term, once growth revives, debt can be paid down and the financial sector curbed so that it does not inflict another crisis on the world.
Πηγή: Bank for International Settlements