directors, sydney, 14 june. it says something about the magnitude of the event that it played out during the tenure of two central bank governors, each of whom were in the role for a decade, and will likely still be an important issue, in the early stages at least, for the next governor. 4 this exercise uses imf data to compare average annual growth in world gdp between 2006 and 2015 with what world gdp growth would have been over this period if the weights of “ advanced economies ” and “ emerging and developing economies ” had remained unchanged from their averages over the 1996 – 2006 period. i use inflation for the advanced countries because global inflation data are always affected by a small number of countries that from time to time have very high inflation or hyperinflation. that results in a distorted picture. the data used are the most recent vintages of the data, so that for some of the historical periods they differ from what may have been originally published. likewise, some of the data for the past two or three years, particularly the gdp data, may further be revised over time. but these are the most up to date figures we have as of today. bis central bankers ’ speeches for the gdp data, the figures are up to the march quarter of 2016 while those for inflation and the unemployment rate are up to the june quarter, so the annual averages are computed by expressing 38 or 39 quarters at an annual rate. there have been some small downturns of course. one had occurred in 2000 and another happened in 2008. had downturns of the same size occurred with a slightly different quarterly pattern in the statistics, they would have been labelled “ recessions ” in common discussion. while we like to keep retelling the story about how we didn't have recessions, i fear this risks us making the complacent assumption that we won't have them in future. it would be better to be asking how it was that these downturns were so temporary – and doing what we can to make future downturns like that. to say that does not diminish, however, the fact that this has been a very good run for australia. even with the shift in margins between the cash rate and lending rates, real lending rates have been lower by between 70 and 90 basis points on average in the latter period. had participation rates within age groups moved in the way we have seen but the population age structure been unchanged from where it was in september 2006,

was not enough, and never could be enough, fully to restore demand after a period of recession associated with a very substantial debt build - up. bis central bankers ’ speeches certainly easy monetary policy can reduce the burden on debtors through the cash flow channel, at the expense of savers. this is probably still expansionary in net terms, though possibly less so than it used to be. but in the end, the most powerful domestic expansionary impetus that comes from low interest rates surely comes when someone, somewhere, has both the balance sheet capacity and the willingness to take on more debt and spend. the problem now is that there is a limit to how much we can expect to achieve by relying on already indebted entities taking on more debt. so for policymakers looking to use low interest rates to boost growth, the question is : which entities, if any, in the economy can accept higher leverage safely? in some countries there may be no safe way of borrowing and spending because debt, both public and private, is just too high. in australia, gross public debt, for all levels of government, adds up to about 40 per cent of gdp. we are rightly concerned about the future trajectory of this ratio. but gross household debt is three times larger – about 125 per cent of gdp. that is not unmanageable – but nor is it a low number. it's an interesting question which sector would have the greater capacity to take on more debt, in the event that we were to need a big demand stimulus. let me be clear that i am not advocating an increase in deficit financing of day - to - day government spending. the case for governments being prepared to borrow for the right investment assets – long - lived assets that yield an economic return – does not extend to borrowing to pay pensions, welfare and routine government expenses, other than under the most exceptional circumstances. it remains the case that, over time, the gap in the recurrent budget has to be closed, because rising public debt that is not held against assets will start to be a material problem. the point i am trying to inject here is simply that popular debate in australia about government debt and how we limit or reduce it seems so often to be conducted while largely ignoring the size of private debt. to outside observers this seems odd. foreign visitors to the reserve bank over the years have tended to raise questions about household debt much more frequently than they have raised questions about government debt. so the way ahead is