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Ambrose Evans-Pritchard: Monetize and bail out everything with financial repression
The Moment When Monetary 'Shock and Awe' Finally Fails Has Arrived: What Do We Do Next?
By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, March 17, 2020
Central banks have exhausted almost all their usable ammunition under existing rules yet still failed to calm markets or to unfreeze critical parts of the global financial system.
This moment what we all feared. The danger now is that global recession -- it is no longer "if," as we are weeks into it already -- will morph into something more intractable: a deflationary depression with a wave of defaults that breaks the capitalist system as we know it.
... Dispatch continues below ...
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So what can be done? Let me take an instant stab. Either the rules are changed fast or we risk uncontrolled global liquidation. The Federal Reserve must be unshackled to act as a buyer-of-last-resort for the corporate debt markets, for great swaths of the credit system, and for Wall Street equity indexes.
The European Central Bank must acquire powers to act as a genuine lender-of-last resort for eurozone sovereign states. It must do exactly what Christine Lagarde refused to do when she blurted out last week that “the ECB is not here to close bond spreads” -- an expression lifted word for word from the German board member, Isabel Schnabel, which tells us who is in charge of that institution in the post Draghi era.
This must be backed by a fiscal blitz even greater than in 2008-09, with pledges to “socialize” the drastic losses faced by industry and private firms. What was done for banks last time despite misconduct must now be done for others.
There must be tax holidays, sweeping state guarantees for firms, credit forbearance, a temporary suspension of mortgage payments (pushing out the maturity), and moral hazard be damned -- all under the umbrella of financial repression. ...
... For the remainder of the commentary:
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