Picking up on a theme from recent posts, central banks continue to demand help from fiscal policymakers. According to Bloomberg article entitled “Central Bankers Are Sick of Rescuing the World Economy Alone”, while central banks in Europe, Japan and even the US seem prepared to act in the short-term to ease monetary policy, they have less room to act than in the past if the downturn should persist.
In Europe and Japan rates are already below zero and central bank balance sheets around the word have ballooned under bond-buying programs and the like. Even equities have been purchased directly by the BOJ. In the US, Chairman Powell warned last week that it’s “not a good thing to have monetary policy being the main game in town.”
Notwithstanding, part of the reason we feel the US seems to be doing better than most other economies, is the fact that significant fiscal stimulus was enacted through the corporate tax overhaul — most would agree, and we concur that the positive impact of this is now waning. Further demonstrating the power of fiscal policy, under pressure to act from the Yellow Vest protests in France over the last year, the French government provided a $19.2 billion support package for consumers. While imposed for different reasons, this fiscal stimulus is expected to jumpstart French growth to the point that it is now expected to exceed the average for European economies.
Most would agree that the central bank creativity utilized to stimulate economies, sometimes in the face of concurrent austerity measures, has been impressive and unprecedented. Can they go even further? Perhaps – the idea of unlimited government borrowing without ultimate consequences (essentially, Modern Monetary Theory) is being touted by some. Most think this is a bridge too far – as Margaret Thatcher once said, the problem with socialism is that eventually you run out of other people’s money. We hope that it is. It is important to remember that we believe these monetary schemes haven’t always worked as planned. Remember, as early as 2010, policymakers suggested that it was time to consider exit strategies. How time flies!
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