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Pandemic bills are so big that only money printing can pay them
By Ben Holland, Liz McCormick, and John Ainger
Friday, May 15, 2020
Forced into record spending by the threat of another Great Depression, policy makers are blurring the lines between borrowing the money they need and simply creating it.
Most modern economies have tried to keep the two activities as separate as possible. The typical setup has been for elected politicians to take charge of budgets, and meet any shortfall by borrowing on bond markets –- while the money-printing machinery was walled off in another branch of government, the central bank.
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But those barriers began to look porous after the financial crisis of 2008. And in the coronavirus slump, they've all but disappeared.
With entire industries shuttered and unemployment soaring, only public spending is keeping millions of households and businesses afloat. The governments on the hook for this relief effort are running up some of history’s biggest budget deficits. And they’re paying at least some of the bills with what are effectively loans from their own central banks –- debt that can be rolled over indefinitely, and is really more like money.
"We've had a merger of monetary and fiscal policy," says Paul McCulley, the former chief economist at Pacific Investment Management Co. "We've broken down the church-and-state separation between the two."
"We haven't had a declaration to that effect," says McCulley, who now teaches at Georgetown University. "But it would be surprising if you had a declaration -- you just do it." ...
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