Bernanke believes that interest rates don’t need to drop any further, as the economy is getting stronger, albeit slowly.  In fact, it is about time to raise them.  Summers believes growth is slow because interest rates are obviously still too high, preventing necessary investments from being made.  He advocates “negative” real interest rates.

Bernanke believes that there is a global savings glut, i.e., too much savings and too little investment.  Summers argues that is because the interest rate on savings exceeds the rate of return on investments, which justifies lower real interest rates.  He argues we are in a period of secular stagnation, a point of equilibrium where the economy is simply stuck at minimal growth rates.  To disturb that equilibrium so that growth can increase, we need to kick-start investment by lowering real interest rates (or having a large stimulus package, which is impossible politically).

Because these titans are pure “brainiacs,” it has been a purely intellectual fight with no name-calling.  It has been fun to watch, because of that – just a clash of ideas only, not people !  Now, if only Republicans and Democrats could clash that pleasantly . . .