The US is adjusting structurally and generating real (inflation adjusted) GDP growth (though well below its potential annual rate of 3 3.5 ). The tradable sector is expanding and is not dependent on leverage to generate aggregate demand.

One explanation is that the advanced economies had taken on too much debt and needed to deleverage, contributing to a pattern of public sector underinvestment and depressing consumption and private investment as well. But deleveraging is a temporary process, not one that limits growth indefinitely.

Seeing such data, one cannot help but be stupefied. According to the statistical data of Suning Financial Research Institute, the leverage ratio of Chinese households was only 3 in 1996 and 18 in 2008. But this figure doubled in just six years since the trend of rapid growth of leverage ratio set in, reaching 36.4 . By the third quarter of 2017, the leverage ratio of households has reached 48.6 .

One is leverage.

With insufficient profits to use for investment, nonfinancial corporations will become increasingly dependent on external finance. As their leverage ratios increase, so will their risk premiums, causing their borrowing costs to rise and undermining their profitability further.

China s Untapped Growth Potential

As a result, predictions for the United States where household deleveraging continues to constrain economic growth have fallen short only modestly. The April 2010 report forecast a US growth rate of roughly 2.5 annually in 2012 2013 current projections put the rate a little higher than 2 .

Emerging Europe s Deleveraging Dilemma

We started with a motor with a little lever, a little force transfuser.

But there remains the question of whether consumption share growth is sustainable that is, whether it is the result of income share growth or rising leverage. If it is supported by excessive leverage, effectively shifting future consumption to the present, China could face a significant slowdown or even a major crisis.

The residents sector accounts for an increasing share of the total debt in the real economy, and the leverage ratio has risen rapidly.

Meanwhile, a highly interdependent and (now) less dynamic world economy has been limiting the scope for external growth drivers. Accordingly, even countries with sound balance sheets and manageable leverage have experienced a growth slowdown.

Regulators are already talking about imposing leverage ratios, as well as limits on risk weighted assets. If they follow through, as I expect, there will be no return to the strategies of the last two decades.

But it was a bubble and a highly leveraged one at that. While periodic bubbles may be unavoidable, and no bubble is without consequences, a highly leveraged bubble tends to cause far more damage, owing to its impact on the real economy and the duration of the deleveraging process.

So consumers got overleveraged.

Don t go there in the first place avoid whatever it is whether external pressure under the gold standard, asset price bubbles, or leverage and panic cycles such as that of 2003 2009 that creates the desire to deleverage.

Making matters worse, much of the new credit has originated in the shadow banking sector at high interest rates, causing borrowers repayment capacity to become overstretched. One in five listed corporations carries gross leverage of more than eight times equity and earns less than two times interest coverage, weakening considerably these companies resilience to growth shocks.

What this line of research explicitly does not tell us is that deleveraging will restore growth by itself. No one believes that fiscal balance is the whole growth model anywhere.

The suitability of the tight credit and high interest rate policies in the case of the Republic of Korea, given the high leverage position of its private firms, is beyond the scope of the present report.

But it is impeded by slow growth and, thanks to high unemployment and weak global demand, persistently low inflation. Worse, over the longer term, low investment undermines productivity, while protracted unemployment destroys skills.

It's because there's a little more leverage in terms of the Chinese.

Much has been made of domestic consumption as a driver of Chinese growth in the future. But Justin Lin, a former World Bank chief economist, has argued forcefully that investment will and should remain a key growth driver, and that domestic consumption in China s growth pattern should not be pushed beyond its natural limits into a high leverage model based on rising consumer debt.

The hard part of fully realizing potential growth is shifting the composition of domestic demand from consumption to investment without adding leverage. That means paying for it on the public sector side, via taxes and a reduction in household consumption (and in wealth accumulation).

The annual growth in the labour force has averaged approximately 2.3 per cent.

It shows leverage, trended out from 1919 to 2009.

Leveraging resources and results for children

If the economy as a whole desires to deleverage, a depression ensues. It is then the central bank s job to intervene in the banking system in order to push the market interest rate to the natural interest rate, thereby balancing the economy at full employment without excess inflation.

1. Don t go there in the first place avoid whatever it is whether external pressure under the gold standard, asset price bubbles, or leverage and panic cycles such as that of 2003 2009 that creates the desire to deleverage.

All of these economies were already growing anemically and below trend, as the ongoing process of deleveraging required a slowdown of public and private spending in order to increase saving rates and reduce debts. And now, in addition to the string of black swan events that advanced economies have faced this year, monetary and fiscal stimulus has been removed in most of them, or soon will be.

The initial export shock was likely to reduce growth. The sudden deleveraging imposed by foreign creditors requires the current account balance to adjust further and faster.

Firstly, in promoting investment in industries with greater potential for learning, scale economies and productivity growth, the policies served to raise the average rate of return on investment, and hence total profits, thereby stimulating capital accumulation.

Official Development Assistance (ODA)

And yet the illusion continues to entice policymakers. That is why De Gregorio s book should be required reading for all central bankers.

And that leverage much of it the result of monetary expansion in most of the world s advanced economies is not even serving the goal of boosting long term aggregate demand. After all, accommodative monetary policies can, at best, merely buy time for more durable sources of demand to emerge.

The rate of increase approximated estimated population growth.

If public sector deleveraging is not a complete growth policy and it isn t why is there so much attention on fiscal austerity and so little action (as opposed to lip service) on growth and employment?

The deleveraging of governments, financial institutions, and households is one major cause of the sluggish economic recovery. But sluggish growth means less tax revenue and more demands for payments to cushion hardship, placing pressure on government budgets.

At the end of the day, resolving private sector leverage problems by fully socializing private losses and re leveraging the public sector is risky. At best, taxes will eventually be raised and spending cut, with a negative effect on growth at worst, the outcome may be direct capital levies (default) or indirect ones (inflation).

The unemployment rate remains about two percentage points higher than what most economists consider consistent with a full recovery, and the labor force participation rate is hovering near historic lows. The economy is still operating far below its potential GDP is about 6 below what the economy is capable of producing at full capacity without higher inflation.

A number of ministers also stressed that a key role of aid was to leverage additional private sector investments.

And it has all kinds of levers and ball bearings and gadgets and gauges.

During the 1990s, large business groups of the Republic of Korea (chaebols) expanded quickly through financing from domestic banks, becoming highly leveraged (with an average debt to equity ratio of about 400 per cent in 1997).

Without disputing the need for some deleveraging, a new incarnation of the Vienna Initiative Vienna 2.0 seeks to make the process orderly. After all, excessive and chaotic deleveraging by lenders to emerging Europe and the ensuing credit crunch would destabilize this economically and institutionally fragile region.

Respect for relations between states working in earnest to resolve international conflicts peacefully and using that as leverage for counterterrorism.

Recent IMF research suggests that, given excess capacity, governments would probably benefit from substantial short run multipliers. More important, the focus on investment would improve prospects for long term sustainable growth, which would enable governments and households to pursue responsible deleveraging.