by BCA Research
Markets’ dependence on central bank largesse has also revealed the limits of the unconventional ultra-accommodative policy. The end of the debt Supercycle poses secular headwinds for growth because the level of debt suppresses central banks’ ability to rekindle a credit cycle. Contrary to fears of QE creating uncontrollable inflation, it turns out that high debt levels are deflationary, and deleveraging are difficult to effect when income is growing so slowly. Monetary policy has lost potency in terms of its ability to stimulate growth by rekindling demand for credit. This is because the credit creation process, the primary channel through which monetary policy typically impacts the economy, is impaired.