Gilt complex: central banks prop up the post-virus world, but someone’s gotta pay
The surge in money printing around the world bodes ill for the younger generation, economists warn
While politicians around the world have been throwing trillions at Covid-19, it has been central bankers writing the cheques.
Once, before the financial crisis of 2007, “unconventional” monetary policy was exactly that: an emergency tool only used by Japan in its decades-long fight against deflation. Since then, previously outlandish measures such as quantitative easing (QE) to buy up government debt in order to help push down interest rates have become commonplace.
The emergence of the outbreak has given the balance sheet of the world’s central banks a further leg-up, bringing the combined total to about $30-trillion (R503-trillion), or around a third of global GDP. But when the Federal Reserve is even willing to buy small business loans and municipal debt along with government bonds, has Covid irrevocably blurred the boundaries between monetary and fiscal policy? Has central bank independence become a shibboleth, and who pays the price?..