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.
Caught in the middle of the Brexit saga, European investors can be forgiven if they glossed over a speech by Fed Chairman Jerome Powell that could turn out to be the starting point of a very risky period for the global economy.
It’s no secret that President Donald Trump would want the Fed to cut interest rates and debase the dollar. Earlier this year, he called the Fed “crazy” and Powell himself, “clueless.”
Of course, Powell did not immediately show that these repeated attacks influenced his policy. However, in a speech he gave last week he reiterated his fondness for a very risky idea on how to ease monetary policy even further.