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I find the current monetary context unprecedented and baffling. On one hand there is no significant inflation, or even deflation. This is occurring against a backdrop of continued dollarization; many countries that do not even do significant business with the US, like Malaysia, are basically converting their wholesale distribution and economy into dollars. At the same time growth seems stagnant with global commodity consumption remaining at similar levels year after year. State-incurred debt seems to be constantly growing, balanced by reduced commercial debt and tightening, which, I guess, is caused by low interest rates giving banks no incentive to lend.

It is hard to find any parallels to these conditions in history, sort of the black swan theory of macro economics: every age is different.

Is there any way to relate the current context to classical economics? Did the classical economists (Adam Smith, David Ricardo and John Stuart Mill) describe or analyze conditions like we have today and explain them?

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  • $\begingroup$ Could you please be a bit more specific about the exact thing you want to find an explanation for? What's the focus of the question? Is it low inflation despite dollarization. Do you mean inflation in the U.S. or in those dollarized countreis. In the latter case, note that dollarization occurs as a response to high inflation. Dollarization was also very widespread in the 90s in Latin America, so it's not really a new phenomenon. There are loads on papers on the topic. Would you like more info on that? Or is your question about growth? If so, what's the link of growth to money in your mind? $\endgroup$ – BB King Mar 21 '16 at 0:03
  • $\begingroup$ The kernel of the question is whether the classical economists considered the possibility of very low interest rates < 2% combined with no inflation, and explained why such a condition is possible. $\endgroup$ – Lassie Fair Mar 21 '16 at 0:14
  • $\begingroup$ The first economist I know to consider this possibility was Keynes. The explanation is that the economy is in a liquidity trap. There are also contemporary models of liquidity traps. Would an elaboration interest you, or are you looking for an older reference? $\endgroup$ – BB King Mar 21 '16 at 2:14

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