Coronavirus recovery: We the people are to blame for looming debt crisis

Name: Coronavirus backlash further fraying China’s ties to global economy
Uploaded: 2020-07-16T09:00:16.000Z
Duration: 5 min 2 s
Description: Coronavirus backlash further fraying China’s ties to global economy

Public enemies Nos 1 and 2 are central bank managers and free-spending governments who have ignored their greater financial responsibilities

As long as governments cater to the unrealistic demands of an increasingly demanding and distrustful public, we the people must also share in the blame

Reading Time:3 minutes

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A worker arranges gold bars at a refinery smelter in Sydney, Australia on July 2. While investors revel in asset price gains, the canary in the coal mine is the continued rise in the price of gold, nagging strength in the bond markets, the weakness of oil and the stubborn strength of the US dollar. Photo: Bloomberg

Richard Harris

Published: 5:00pm, 16 Jul 2020Updated: 10:27pm, 16 Jul 2020

“Those whom the gods would destroy, they first drive mad.” This quote, often attributed to the Greek playwright Euripides, is as relevant today as when it may have been written in the fifth century BC.

Until this century, the major central banks followed sensible “handbag economics”. Despite what Modern Monetary Theory economists say, you can’t spend what you don’t have. However, the crash in 2008 left central banks mad enough to embark on an unlimited money-printing spree that, if unchecked, will lead to the destruction of the global financial system as we know it.

There is an image circulating of Mount Printmore, a meme on Mount Rushmore. The heads of the presidents are replaced by past and present heads of the US Federal Reserve – Alan Greenspan, Ben Bernanke, Janet Yellen and Jerome Powell. They should be joined by European Central Bank presidents Mario Draghi and Christine Lagarde, as well as Mervyn King, the last Bank of England governor.

There is no metaphor of them being like rock. Rather, they have wimped out of their independent responsibilities of managing our money. They are global economic public enemy No 1.

Governments have increasingly resorted to borrowing to support rapidly growing public budgets, and China needed somewhere to put the cash from its trade surpluses. That was limited, however, and after 2008 public borrowing could only be funded by quantitative easing in the name of stimulating the economy.

05:02

Coronavirus backlash further fraying China’s ties to global economy

Quantitative easing meant central banks began to buy government debt ostensibly to reduce interest rates. The central bank has no money, though, so it has to get it from its government. It is as circular as it sounds – the government is giving itself money. The 2020 crisis has seen the authorities not even bother with the pretence of borrowing; it has been straight to the printing presses.