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Quarterly review: US, China must act to avoid monetary breakdown, Why low inflation could last 50 years, and more

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Quarterly review: US, China must act to avoid monetary breakdown, Why low inflation could last 50 years, and more

THE QUARTERLY REVIEW  – OMFIF

OMFIF’s most read opinion and analysis from the start of the year

1 January-31 March 2021, Vol.12 Ed.1

Inflation fears show currency reset needed

US, China must act to avoid monetary breakdown: With the rise of quantitative easing after the 2008 financial crisis, intensified by the Covid-19 pandemic, central banks are exerting ever-greater control over financial markets. This is part of an era of debt-fuelled state capitalism that is looking increasingly vulnerable. The system needs a reset. One thing is clear. Anything Biden undertakes in this field will fail unless the US involves China in a meaningful and constructive way, write Willem Middelkoop and David Marsh. 

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Key premises no longer apply
Why low inflation could last 50 years: Covid-19 has upended traditional economic thinking in a way that was even harder to anticipate than the virus itself. Economists were not prepared for a simultaneous supply and demand shock. There is no inflation in the system. Is this phase an exception or is it the new normal? I am going to stick my neck out and say it will last for 50 years, writes Meghnad Desai. 
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Boundaries blurred
Threats to central bank independence: It’s easy to consider issues relating to central bank independence as a recent phenomenon, brought on by Covid-19. But the virus has amplified a concern that has been present since the 2008 financial crisis. The problem is that central banks are now operating in too many fields. The crunch will come when central banks have to counter inflationary pressures again, writes David Marsh. 
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Central banks stuck with assets
No way out of QE policy dead-end: Central banks are stuck in a problem of their own creation, as a result of choosing to combat the 2008 financial crisis through QE. That strategy shows every sign of becoming a long-term one. Buying up large amounts of securities to prop up the economy was not the error. It was choosing the wrong assets to buy, writes Tamim Bayoumi. 
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Government debt markets
The Bank of England nearly financed the deficit. Does it matter?: The question over monetary financing is interesting but irrelevant. The real question is whether fiscal sustainability will begin to encroach on an independent MPC. So far, the institutional framework has stood firm, but if it starts to give way, it may not be obvious, writes Chris Papadopoullos. 
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