On a train back from Manchester I listened to this fascinating LSE lecture featuring Mervyn King, Alan Budd, and Charles Goodhart: http://richmedia.lse.ac.uk/publiclecturesandevents/20150119_1830_conversationCentralBanking.mp3
From 44:40 they get into a discussion which is basically Lord King's take on what others call Secular Stagnation. Thought it worth posting my notes so you have another take if you don't want to listen yourself.
King argues (and I agree) that the secular fall in real interest rates has been mirrored by a correspondent/ related increase in asset prices. Moves in the housing market have been one manifestation of this response, and the associated debt accumulation required to finance asset purchase has been absolutely rational on the part of households.
But there is a limit as to how far rates can be cut, and how much monetary policy generally can do to stimulate aggregate demand. Monetary policy easing/ rate cuts bring forward consumption, delivering more jam today at the expense of jam tomorrow. This is reflected in debt accumulation. Companies observing households bringing their consumption forwards
have ever decreasing incentives to invest (as the fruits to this investment in the form of capturing weak future consumption will be low).
Absent a perpetual fall in real rates, this ultimately manifests in lower aggregate demand. Given where we are today, it is not clear that lower rates are the right response to managing lower demand. This was recognised in the 90s and 00s as the Paradox of Policy: short run policy demands have over recent years run contra to long-run policy demands. Some people describe this all with the phrase Secular Stagnation, but this offers no answer: it is simply a description of a policy problem.
I find this a straightforward articulation of a position that ties demand and asset prices to real interest rate momentum. Which raises the question as to what happens to asset prices if/ when real rates stop falling.