Summers warns on secular stagnation

Larry articulates a good summary of the forces of deflation and slow growth at work in the world today.

Former U.S. Treasury Secretary Lawrence Summers talks about economic growth and financial markets in the U.S. and China, and Democratic presidential candidate Hillary Clinton. Here is a direct video link.

Further to his comment 2 minutes in that there is a glut of savings and a dearth of investment in the economy today, I would suggest there is good reason for this. In a world awash in excess capacity, supply and “liquidity” (thanks to the credit and QE bubbles), there is very little incentive to invest and every incentive to pile cash to the side and wait. And this is precisely what rational money has been doing over the past 5 years. Those with the least discipline who have been deploying capital with wild abandon, have been doing so with increasing leverage and financial risk. This has magnified asset over-valuations and made the entire financial webbing of the economy weaker and more vulnerable. Which gives patient capital even more reason to stand clear and watch with interest for what is now set up to be a spectacular investment opportunity ahead.  But only for those who can maintain sobriety and liquidity now.

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