This article assesses economic growth in the context of consumer saturation. We show that consumer based economies tend to suffer from demand saturation after an initial and prolonged period of growth. However, structural demand saturation irrevocably triggers a Minsky-type super cycle that is characterized by high debt, high income inequality, stagnation and financial instability. We show that controlled debt deflation through negative interest rate policies can be effective in combating recessionary conditions and resolving the debt crisis.

Moreover we show that monetary policy can help to mitigate the effect of consumer saturation through yield curve targeting. The idea is to ensure that economies do not grow too quickly, but maintain a growth rate which corresponds to the demand growth rate at which consumers replenish their stock of goods in the long run. We argue that such a policy avoids boom and busts and smooths out the business cycle.


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