Adair Turner, an expert speaker on global finance, explores the best course for monetary policy
Writing for the Financial Times, Adair Turner, a Senior Fellow at the Institute for New Economic Thinking, argues that the best course for monetary policy is to print money and raise interest rates. He believes that there are “no technical reasons for rejecting such measures, only the fear of breaking a taboo.”
Adair notes that the global economy is suffering the hangover from many decades of excessive private sector credit growth, and that debt owed by the public and private sectors has actually increased as a proportion of GDP. Economists agree that weak demand has led to this current situation, but tend to have different views about how to get out of it.
The response from most countries has been to “combine fiscal tightening with ultra-loose monetary policy, setting short-term interest rates close to zero and using quantitative easing to reduce long-term rates and boost asset prices.” But, says Adair, sustained low interest rates are dangerous because they:
- Create incentives for highly leveraged financial engineering.
- Make it easier for uncompetitive companies to survive, which in turn stymies productivity growth.
- Restart growth in private credit, which is what led to the current predicament.
To counter this, Adair suggests that we should move swiftly to high interest rates. He goes onto outline the best course of action to achieve this: “Government deficits should temporarily increase…be financed with new money created by the central bank and added permanently to the money supply.”
Click here to read the full article (paywall).
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