I dread the first lawn mow of the spring. The engine is out of practise and residual corrosion has changed the delicate balance of chemistry required for ignition.

This is where the global economy is at. Central banks have flooded the engines with fuel, hoping to fire up growth and cut unemployment.

First they cut interest rates to zero, or nearly zero. They printed money to buy government bonds, squirting money into the banking system to encourage lending. But still the engine hasn't fired.

Economists describe it as the zero-bound problem, where the closer interest rates get to zero the less risk borrowers want to take on. Money gets hoarded in central bank deposits, failing to be pushed into the real economy.


Some are worried there is so much petrol that when the engine does fire up, the global economy will burst into flames in a surge of inflation or hyperinflation. Certainly much of the petrol of printed money has spilled out of the United States, Japan, Britain, China and Europe, and is surging into smaller economies such as New Zealand and Australia, which have open borders for investment flows. This is pushing up exchange rates and creating asset bubbles in these smaller, open economies.

Many economists are now wondering if there are structural problems. Firstly, ageing populations in the developed world are slowing growth. Older savers opt for government bonds and guaranteed bank deposits, which pushes down investment returns and means those households have less money to spend.

Secondly, there's been a structural shift in income and wealth over the past 20 years. Those with higher incomes spend proportionately less of their incomes, reducing demand for goods and services that generate economic growth. Those on middle to lower incomes topped up their spending power over the past two decades with debt, but have now maxed out their credit lines.

Thirdly, global deregulation has heightened market volatility, created "too big to fail" banks and shifted a chunk of income to a sector that has destroyed value rather than created it.

It's clear the economic engine needs rebuilding. That means a redistribution of wealth, a restructuring of debts that cannot be repaid with current growth rates, and a re-regulation of a financial sector that has created dangerously large institutions.

The mower needs a new engine, not just more squirting and pulling.

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