The US financial system is on ventilator support administered by the federal reserve - second time in the last 12 years.

Our financial system is immunocompromised and the disease has progressively worsened.

Let us try to diagnose the disease ...

In 1980 a 1% rise in spread, or cost of borrowing due to an economic disturbance, put an *additional* burden of 1.4% of GDP on the indebted.

The federal reserve could counter that adverse shock by lowering interest rates an equivalent amount.

Today, the same shock would put an *additional* burden of 2.5% of GDP on the indebted, AND the federal reserve cannot lower rates any further.

Hence the need for a ventilator.

But you cannot live a normal life on a ventilator. We need new solutions, and we *can* do it.

@profsufi @ludwigstraub and I have written about the nature of this "indebted demand" problem, and how it leads to "debt traps" that require ventilators here. https://scholar.harvard.edu/straub/publications/indebted-demand

You can also watch @ludwigstraub present the paper on Thursday, April 16th @ noon eastern, or 4pm GMT in a webinar here. https://sites.google.com/view/virtualmacro/