a strong positive relationship between savings rates and lifetime income. as documented in king and low ( 2014 ). see summers ( 2014 ) and wolf ( 2014 ). the hypothesis that weak post - crisis growth represents a debt super - cycle which will ultimately come to an end is set out in rogoff ( 2015 ). imf ( 2009 ). bis central bankers ’ speeches but they do attach significantly more weight to the downside risks than they did prior to the crisis. 11 this would reduce long yields in two ways : by making firms less confident about the future payoff from their investment projects, thus requiring a lower level of interest rates to incentivise them to invest ; and by making savers demand a higher credit premium to lend to the private sector, thus driving a wedge between risk free rates and other interest rates in the economy. 12 my own view is that most of the headwinds that have buffeted the global economy over the period since 2008 - 09 do bear the hallmarks of a balance sheet recession in which the impetus to reduce debt is the force driving agents behaviour : first by financial institutions who reduced the supply of credit to the real economy ; then by the businesses and households who simultaneously became more pessimistic about the outlook and reassessed their need to maintain their own stock of liquidity. when public sector balance sheets reached their limits, it was the turn of deleveraging at a national level through fiscal consolidation, a process which is likely to continue for some time to come in the uk and euro area. it would be overly pessimistic to have as one ’ s central case that the headwinds currently affecting the economy will persist for decades to come. although they will be persistent, they will not be permanent. indeed there are now nascent signs that some of these headwinds have already begun to ease. for example, against a backdrop of improved confidence in the recovery ( chart 5 ), firms have slowly but surely been increasing the amount they invest relative to the amount they save ( chart 6 ). and household saving has also declined from its very elevated precautionary levels. but that is not to say that it is imprudent of financial markets to attach weight to the downside risks – they are real. indeed, reducing the probability of those risks materialising has been a driving factor in the mpc ’ s decision to maintain bank rate at its historically low level of 0. 5 % for 6 years, and the

through the crisis. almost no institution was immune from suspicion, the result of the knock - on consequences so eloquently described by bagehot when he wrote : “ at first, incipient panic amounts to a kind of vague conversation : is a. b. as good as he used to be? has not c. d. lost money? and a thousand such questions. a hundred people are talked about, and a thousand think, “ am i talked about, or am i not? ” “ is my credit as good as it used to be, or is it less? ” and every day, as a panic grows, this floating suspicion becomes both more intense and more diffused ; it attacks more persons ; and attacks them all more virulently than at first. all men of experience, therefore, try to “ strengthen themselves, ” as it is called, in the early stage of a panic ; they borrow money while they can ; they come to their banker and offer bills for discount, which commonly they would not have offered for days or weeks to come. and if the merchant be a regular customer, a banker does not like to refuse, because if he does he will be said, or may be said, to be in want of money, and so may attract the panic to himself. ” this sentiment is described more prosaically in tables 3 and 4. they show that the risk premia demanded by investors to lend to all large banks rose very sharply during the crisis. for most banks the spreads on their senior unsecured debt had more than trebled in october 2008 relative to their levels at the start of 2007. similarly, credit default swap premia – the cost of insuring a bank ’ s debt – shot up. all banks, irrespective of the precise nature of their business and balance sheet, were tarred with the same brush. moreover spreads and cds premia remain elevated today – almost universally, large uk and us banks face much higher borrowing charges compared to risk - free rates, and are seen as riskier entities, than prior to the crisis. the size, concentration and riskiness of banks have increased in an extraordinary fashion and would be unrecognisable to bagehot. higher reported rates of return on equity were superficial hallmarks of success. these higher rates of return were required by, and a consequence of, the change in the pattern of banks ’ funding with increased leverage and more short - term funding