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The Age of Secular Stagnation

What It Is and What to Do About It

Investors wanted: a vacant house in Newark, New Jersey, May 2014. EDUARDO MUNOZ / REUTERS

As surprising as the recent financial crisis and recession were, the behavior of the world’s industrialized economies and financial markets during the recovery has been even more so.

Most observers expected the unusually deep recession to be followed by an unusually rapid recovery, with output and employment returning to trend levels relatively quickly. Yet even with the U.S. Federal Reserve’s aggressive monetary policies, the recovery (both in the United States and around the globe) has fallen significantly short of predictions and has been far weaker than its predecessors. Had the American economy performed as the Congressional Budget Office fore­cast in August 2009—after the stimulus had been passed and the recovery had started—U.S. GDP today would be about $1.3 trillion higher than it is.

Almost no one in 2009 imagined that U.S. interest rates would stay near zero for six years, that key interest rates in

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