The Post-GFC Liquidity Trap: In Talks with Brett House, Deputy Chief Economist Scotiabank
By Unicast Entertainment
For the 18th episode of Unicast’s running series of video interviews with the successful from across the professional spectrum, they hosted Brett House – Deputy Chief Economist at Scotiabank, Former Advisor to the Executive Office of the Secretary-General in the UN and Former Economist at the IMF. Through this interview, they discussed a wide variety of topics ranging from the importance of leveraging virtual networking platforms during the COVID crisis, to the durability of Canadian healthcare. Yet, one topic that was especially pertinent for one’s understanding of the global economy and nations’ toolkits to counter the COVID crisis was on the declining interest rates we see almost globally.
While the discussion started from the political facets of such interest rate manipulation and how it may have to do with administrations seeking inflationary growth for political motive, Brett informed us that this was not exactly the case. As he states, “no evidence suggests that inflation is being stoked” by these monetary aggregates, which he believes is “consistent with the liquidity trap seen since the Global Financial Crisis.” Nations have worked towards achieving the zero lower bound, often even going sub-zero in their pursuit of recovery from the GFC, and this has caused investment growth to lag – even in a seemingly expansionary environment. This is why price pressures are moderate in this environment and growth continues to remain disappointing.
Brett ties this in with Larry Summer’s hypothesis on secular stagnation, where an “over-saving, under-investing” private sector has made it almost mandatory for fiscal policy to come in and revive growth. This has only been further exacerbated by the general lack of investment demand in the global economy that has been hit by the many crises the global economy has witnessed since the start of the century – the COVID crisis being the most recent, and debatably, most significant.
Therefore, contrary to the opinion that was presented to Brett – about the politically-motivated decline of interest rates to prompt growth – he identified this trend as a natural product of the instability caused from recent crises and the near-ZLB environment in which many leading economies – such as the US – have had since the GFC. If there were to be a politically motivated manipulation of the economy to stir growth it would have to, therefore, be fiscal in nature.
For more such interesting industry insights, discussions on the nature of the global economy and advice from Brett on professional growth in this key juncture of your journey, check out our full interview at: https://www.youtube.com/watch?v=MM2bbwzBLrk&t=65s
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