The Financial Times’ Martin Wolf is out with a follow-up to his widely read article on weak global demand.
The latest report talks about the solutions to advanced economies where traditional (and non-traditional) policies are failing to spark demand. He talks about doing more to redistribute income to spenders from savers but the most interesting thing he touches on is more experimental monetary policy.
Hyper-aggressive monetary policy helps by delivering real interest rates that are well below zero. An alternative is fiscal deficits. But that risks putting debt on a permanently rising path. Still more unorthodox is outright monetary financing of fiscal deficits, as Adair Turner, former chairman of the UK’s Financial Services Authority, has recommended. This means nationalising the creation of money now delegated to often-irresponsible private banks. This is a more direct (and probably more effective) way of using a central bank’s power to create money in order to expand demand than employing it indirectly, via manipulation of asset prices. Such direct monetisation of deficits seems particularly sensible in Japan.
