1 thought on “Institute of Economic Affairs appoints Academic and Research Director”

  1. Posted 23/08/2021 at 15:49 | Permalink

    The financial system limit brings with it a political system limit.

    Politicians need to be aware that there are
    no magic answers, no policy levers that can solve the dilemma of ‘expand
    now and add to stagnation in a decade, versus do not stimulate and risk immediate stagnation,’ which
    is explained in the book.
    What led politicians to make our financial worse? Economics originated as a political and social science but
    has somehow lost its way buried in the detail of microeconomics.
    The old rule of ‘stimulate your way out of recession’
    worked when debt levels were much lower, nowhere near the feasible limits, and therefore money could expand
    without anyone worrying about the consequences.
    As noted, for a period that ended nearly forty years ago,
    that expansion caused negative real interest rates.
    Now, after seventy-five years of the post-war consensus, in which every recession has been neutered by economic stimulus,
    the economic cycle driven by central banks keeps bumping up
    against the financial system limit.
    Central banks are now the victim of their past policies.
    The Fed, and other central banks, need to keep on stimulating so that more credit can pay the interest cost of earlier debt creation.
    The alternative is to crash the economy, which nobody wants.
    The financial system limit and political system limit are
    intertwined.

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