The sharp deceleration of the US economy in 2008, under the weight of a significant housing correction and a banking crisis opened up the possibility of a severe recession bordering on a depression. This prompted the authorities to resort to extreme policy measures aimed at preventing such an outcome.

We are not entirely out of the recessionary woods yet, but the evidence provided by economic data is that we have obviously avoided a near-depression. At the same time, there are reasons to believe that the climb back to robust growth will not be a smooth process. And the unwinding of the excessive policy measures will be problematic.

American policymakers have been particularly aggressive in implementing policies to fight the recession. Government spending has expanded enormously to stimulate the economy and compensate for the shortfall in other components of aggregate demand, particularly consumer expenditures. Given the circumstances, policymakers cannot be faulted for their actions because failure to act would have led to a very deep recession indeed.

One of the consequences is that the state of government finances has deteriorated substantially. The fiscal deficit, as a percentage of GDP, has risen to worrying heights even as the debt load has increased tremendously. Naturally, the government is making comforting statements that it is cognisant of the problem and has plans to restore its wacky finances to good health in due course. These statements are aimed at bond investors in general, and foreign entities in particular, neither of which are entirely convinced by the arguments.

One way that the government can reduce its fiscal deficit and eventually pay down its debt is by the resumption of robust growth via autonomous private-sector spending. But it would require a long period of rapid economic advance to meaningfully reduce the size of the debt.

Unfortunately, the trend rate of growth over the medium term is likely to be lower than what has been experienced in the past. For one thing, there is a general mood of caution and a lack of animal spirits in the private sector. This doesn't create conditions conducive to efficiency gains, innovation and hearty spending.

Firms may be wary about increasing capital expenditure when there is excess capacity in the system and it is not clear how robust consumer spending and exports will be in the future. Certainly, corporations will be keen to enhance their productivity and gain a competitive edge. But, apart from that, they may want to contain costs and run a tight ship.

Normally, productivity and unit labour costs rise and fall over a business cycle, as output and employment fluctuate. For example, it is well known that productivity and corporate profitability rise rapidly as an economy comes out of a recession, simply because of efficiency gains as existing capacity is used up. However, in this cyclical recovery, an initial rise in productivity may give a false impression of its likely performance over the next few years.

Globalisation, which has been a factor in raising the potential growth rate, is being challenged as protectionism gains ground and trade flows are constrained. In the past, globalisation has provided an impetus in the drive towards efficiency, optimal resource allocation and productivity growth.

Technological change is an important driver of productivity growth, and a major wave of innovations can work wonders for the economy's potential growth rate. This is what happened in the late nineties in the United States with the propagation of computers, the growth of local area networks, the spread of the internet and the explosion of e-commerce. A virtuous technological and productivity cycle was in place, and the effect was so powerful that it lasted into the early years of this century.

The present state of technological change is mainly in the form of accretions and improvements rather than radical transformations.

There are no major innovations or a bunching of synergistic novel technologies, to generate another virtuous cycle. Currently, there are no "killer applications", to use tech industry phraseology.

So, if the trend rate of growth proves to be more modest than in the past, then the government's plan to reduce its debt load primarily through the normal process of economic recovery may be difficult to achieve. And that leaves three other solutions: deeper spending cuts, higher taxation or inflation.

Iraj Pouyandeh is a strategist and senior portfolio manager at LOM Asset Management. He manages the LOM Global Equity Fund. For more information on LOM Asset Management please visit www.lomam.com