[J pold]

The second Great Contraction--The global economy is misdiagnosed as being in a "Great Recession", but the real problem is an overleveraged system

The phrase "Great Recession" creates the impression that the economy is following the contours of a typical recession, only more severe - something like a really bad cold. That is why, throughout this downturn, forecasters and analysts who have tried to make analogies to past post-war US recessions have gotten it so wrong. Moreover, too many policymakers have relied on the belief that, at the end of the day, this is just a deep recession that can be subdued by a generous helping of conventional policy tools, whether fiscal policy or massive bailouts.

But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation.