Speaking at a Financial Times event in the City of London yesterday (February 12) he said the recent slowdown in global GDP growth in many parts of the world was the result of fears about the impact of higher interest rates.
Mr Carney said the traditional approach of many market participants was to follow business cycle theory, which states that during prolonged periods of economic growth inflation rises and debt levels rise.
In order to combat the higher inflation central banks tended to put interest rates up and the higher rates caused a slowdown in economic activity.
Mr Carney said central banks have become better at avoiding the mistakes of prematurely putting interest rates up and so the periods between recessions should last longer and the period of recession should be shorter.
The governor said: "On the surface, global debt burdens are alarming. The outstanding stock of debt has almost doubled since the crisis.
"Public debt burdens across advanced economies have risen above 90 per cent of GDP for the first time since WWII.
"Public sector debt is important for intergenerational equality, and high levels of public indebtedness tend to result in lower growth over the long run.
"But history suggests that high public debt is generally a chronic not an acute problem. Provided fiscal frameworks remain credible, public debt tends to be less informative for predicting recessions.
"As borrowers take on more debt and devote a greater share of cash flows to servicing it, they become more vulnerable to shocks.
"And there will always be shocks. Debt may not be the proximate cause of the crisis, but it can be the vulnerability that turns shock into slump."
But Peter Elston, chief investment officer at Seneca, said debt could tip the world into recession.
Mr Elston was sceptical whether central bankers were now better at understanding what is happening, after all, he said, the Bank of England had failed to see the last recession coming.
He said the present phase of economic expansion has lasted as long as it has because the last recession was particularly severe, as it is typical for economies emerging from deep recessions to grow for longer.
Mr Carney said the number of "at risk" borrowers in the UK, US and Eurozone is currently 1 per cent, compared with 3 per cent before the financial crisis.
Overall credit growth has averaged 3 per cent a year over that time, which is generally less than nominal GDP growth, so was less of a concern.
Mr Carney, said the 'chronic rather than an acute' problem meant the effect of the debt currently in the global system would have a long-term negative impact on growth rather than lead to short-term shock.
Peter Toogood, chief investment officer at The Adviser Centre, believes the levels of long-term debt in the economy means the world is headed for "Japanification", where inflation, and economic growth remain persistently low.
Mr Carney said in the absence of a further deterioration from the Chinese economy or from what he sees as the political risks of populism, he expects the global economy to grow at about trend level this year and next. The Bank of England calculate trend level to be 3.5 per cent.
David Scott, an adviser at Andrews Gwynne in Leeds, believes a recession will happen, whether it is in 2019 or 2020.
He said: "At some point, the world will have a recession exacerbated by extraordinarily high corporate debt.
"Just like subprime mortgage debt triggered the last recession, corporate debt will trigger likely the next one.
"This corporate debt will precipitate a liquidity crisis and create havoc in all sorts of 'unrelated' markets.
"Investors will learn, once again, that all asset classes are globally correlated in a crisis. There will be few places to hide, but there will be some which will rise in value, some significantly."
Mr Scott believes the difference to last time will be the speed of recovery.
He said: "Recovery from the Great Recession was the slowest on record. The next recovery will be even slower.
"Debt that is not self-funding is future consumption brought forward. We are currently enjoying consumption and growth that cannot happen in the future.
"Bad debt is a drag on future growth, and the amount of debt the world now has will be a monster drag on future growth."
david.thorpe@ft.com
