The world’s central banks are starting to experiment. But what comes next?

Adam Tooze in The Guardian:

Are we seeing the end of the supremacy of the US dollar? With soaring government spending and gaping deficits are we on the cusp of a great surge of inflation? In light of the extreme financial measures required by the Covid-19 crisis and the alarming polarisation of US politics, the markets can be forgiven for asking such dramatic questions.

But it is worth reminding ourselves that as recently as March, the whole world was crying out for dollars. And far from fearing inflation, the problem actually facing central banks is how to avoid sliding into deflation. Falling prices are a disaster because they squeeze debtors – think negative equity in housing markets – and create a vicious circle of postponed purchases, leading to falling demand and further deflation.

In response to the threat of deflation, there are, indeed, changes afoot. But these take the form not of some dramatic collapse, but of a series of subtle but important adjustments in central bank policy.

More here.

Like what you're reading? Don't keep it to yourself!
Share on Facebook
Facebook
Tweet about this on Twitter
Twitter
Share on Reddit
Reddit
Share on LinkedIn
Linkedin
Email this to someone
email