If after the great financial crisis of 2007-2009 the word “extraordinary” characterised monetary policy, the Covid-19 pandemic calls for a much stronger adjective: “unprecedented”.
As the world has never before been faced with an instance when virtually all economic activity stopped for a certain period of time, this is an appropriate word. However, in monetary policy really very little can be said to be truly “unprecedented”.
For example, take modern monetary theory (MMT) — a theory about how to have your (monetary) cake and eat it, which (simplistically) states that if a country can print its own currency, that country will never default on its debt because it can create as much currency as it wants to and use it to pay back the debt.
Major central banks, to a certain degree, have already begun versions of MMT.
I know the chances of anyone paying attention to this article are slim, but it’s worth putting it out there nevertheless. If you are stockpiling to prepare for Brexit, as it increasingly is the fashion, you need to stop. You are doing yourself and the others around you more harm than good.
When the bank of central banks warns about financial stability, you have to take notice — even if the warning comes in the Bank for International Settlements usually dry, academic style.
The BIS recently published a paper about the effect of prolonged interest rates on financial stability, and it makes worrying reading. (However, as most people are on holidays in August, unless they are reading it on the beach it will largely go unnoticed).
The snow has melted and it’s time to make plans for the future again. And like every spring, those plans are likely to include what has become known as “reflation” — inflation increasing again to a level where it can eat away at the mountain of debt the world’s big economies have to deal with.
Will consumer price inflation, rather than inflation in asset prices like property and securities, finally take off? There have been two interesting points of view last week on this issue.
Central banks are still worried about the danger of deflation, even though they have timidly started to lift interest rates. How else would they explain real negative rates almost everywhere in the developed economies?
As the effects of the vote by the UK people to leave the European Union still unfold, more and more economists say property will take a serious hit. A 50% cut in property prices in London is among the possibilities mentioned by one analyst.
The word “deflation” is on everybody’s lips now, with falls in consumer prices the main worry of central bankers and their ilk. But are things really all that bad, and what other type of deflation should we worry about in 2016?
This article was originally published in South Asia Monitor, India.
Some analysts in developed markets insist that future growth will come from emerging markets, whose share of world GDP has increased rapidly over the past decades. But if the India’s consumers are anything to go by, the road ahead for growth is not that straight, and it is quite bumpy.