Stagnation

Stagnation is a prolonged period of little or no economic growth, with real GDP expanding well below trend, often under 2% per year, alongside flat wages and weak investment. Unlike a recession, which is a sharp contraction, stagnation can drag on for years or decades without ever registering as an official downturn.

Why it matters

Japan is the canonical case. After its asset bubble burst, the Nikkei 225 index fell from a December 1989 peak near 38,900 and did not reclaim that level until 2024, thirty-four years later, despite near-zero interest rates and pioneering rounds of quantitative easing. The episode showed that monetary stimulus can fail to restart growth when demographics, debt overhangs, and damaged balance sheets weigh on demand.

Economists revived the phrase secular stagnation, coined by Alvin Hansen in 1938 and reintroduced by Lawrence Summers in 2013, to describe the slow-growth, low-rate decade that followed the 2008 crisis across much of the developed world. Stagnation matters politically as well, since stagnant real wages feed distrust of institutions, including monetary ones.

In the gold vs bitcoin debate

Stagnation is the environment that produces experimental monetary policy: zero and negative interest rates, massive central bank balance sheets, and fiscal deficits financed by money creation. Gold and bitcoin both draw demand from investors who see those experiments as slow-motion currency debasement. Austrian-leaning bitcoiners go further, arguing that cheap money itself causes stagnation by keeping unproductive firms alive, and that a fixed-supply money would force a more honest allocation of capital.