Creditism is false and dangerous. The correct theory is that national income is determined by the quantity of money. This means the deposit liabilities of the banking system, since most payments are across bank accounts. The cause of the Great Recession of 2008-09 was not that "the world economy had too much debt" but that in all the leading economies money growth was too high in 2006 and early 2007, but then plunged in 2008 and 2009 to the lowest levels since the 1930s. 

At any time, governments and central banks can easily expand the quantity of money. In extremis, they can resort to the printing press. More prosaically, they can borrow from the commercial banks and use the balances thereby created to purchase assets from the private sector, boosting the level of bank deposits. In the last year or two, this been called "quantitative easing", but Keynes wrote about and explained the operations 80 years ago in his Treatise on Money. The plunge in money growth has now been halted, asset prices are recovering and debts are becoming more manageable. A fairly standard recovery is under way. 

Indeed, expansionary monetary policy — in which QE is proving a vital technique — can ensure that 2011 and 2012 are good years for world economies, despite el-Erian's worries about a debt overhang. Also misplaced are concerns in the commentariat that fiscal retrenchment, stopping the growth of public debt, will prove deflationary. Numerous episodes can be cited — from both our own experience and that of other countries — in which cuts in public spending have been outweighed by larger increases in private expenditure. 

Since QE is available as a reserve weapon to boost the economy, the Chancellor of the Exchequer George Osborne must be congratulated on the large, necessary and overdue reductions in government expenditure announced in his Spending Review. All being well, the UK cyclical recovery of 2011 to 2014 will be rather like that of 1982 to 1986 or 1993 to 1997, and very much an example of "the old normal".