Monetary and fiscal policy
Where are we in the debt cycle and what are the implications for the future?
Dear Reader,
What part of the debt cycle are we in now, and how will the COVID19 induced economic shut-down play out? In order to discover where we are, we must first retrace where we have been.
In the leadup to the 2000 dot-com bubble, total household, corporate, and government debts were at historic highs. From 1999 to late 2004, global monetary-policy rates (on a GDP weighted average) (GMPRs) were reduced by central banks from 9% to 3.5% in order to relieve the pressure of the debt burden. Then, from late 2004 to late 2007, GMPRs were raised to 5% and the economy started to collapse under the crushing weight of the debt. Central governments and banks stepped in and aggressively lowered GMPRs to 1.8%, initiated unprecedented levels of money creation, bond buying, acted to guarantee debts and credit facilities and acted as a lender of last resort.
Instead of debts being restructured, written down and defaulted on in order to reduce the debt burden and deleverage the economy, centralisedβ¦