Great Graphic: Measuring Cost of Extend and Pretend

There is a debate.  On one hand is Summers,who argues that modern economies have entered an era of secular stagnation.  Full utilization of the factors of production and particularly capital and labor is not possible without stimulating aggregate demand in a way that facilitates bubbles.  The broad strokes of the argument can be found implicitly or explicitly in much of the commentary and economic analysis.

The other side of the debate includes economists like Bernanke, and Rogoff and Reinhart.  Their argument is less abstract.  What most modern economies are experiencing, they would say, is what is being experienced is very much consistent with what happens when the credit cycle ends with a financial crisis.   It is neither secular nor stagnation.

Reinhart and Rogoff argue that recovering from a financial crisis take a while as in years.  Households and firms take years to work off the debts that were accumulated.  They are not necessarily willing to take on more debt.  Financial intermediaries (banks) have non-performing loans and compromised balance sheets and may be hesitant to lend.    Regulators, like the proverbial general fitting the last battle, may force banks to adopt higher capital ratios.