Cold turkey is the only option for developed world

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Felix Martin, economist in the Thames River global credit team, responds to the Bank of England's August Inflation Report.

At the presentation of the Bank of England’s August Inflation Report, governor Mervyn King offered a sobering diagnosis of the malaise afflicting the UK and the other developed economies. The underlying cause of the crisis of global crisis of 2008-09 – the massive overhang of debt in the developed economies – has not gone away. Emergency monetary policy, emergency recapitalisation of banks, and emergency fiscal stimulus stemmed the liquidity crisis and put a floor under the collapse in output. But the underlying problem is one of solvency, not liquidity. What is more, after two years ...

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