The failures of monetary policy in the wake of the 2008 global financial crisis are manifest. The Federal Reserve took interest rates to zero in 2008 and held them there for seven years before raising them slightly in recent years.
The Fed also expanded its balance sheet through money printing from $800 billion to $4.5 trillion from 2008 to 2014. That balance sheet has only been reduced slightly.
Other central banks including the European Central Bank and the Bank of Japan used negative rates and expanded their balance sheets even more than the Fed. Those negative rates and bloated balance sheets are still in place. These extreme forms of monetary easing were supposed to provide “stimulus” to return the economy to self-sustaining trend growth. Nothing of the sort happened.
The economy grew, but at the slowest pace of any recovery in history. Europe and Japan have suffered repeated recessions and periodic deflation while the U.S. has suffered below-trend growth and disinflation. None of the central bank policies has produced the desired results and none of the central banks has shown any capacity to escape the low rates and money printing they created.
Since 2008, we have lived through a massive monetary experiment that has now been shown to be a massive failure. Rather than admit their mistakes, global elites instead seek to blame legislators and policymakers for failing to stimulate further using fiscal policy.
This article describes how central bankers were disappointed at the inability of fiscal authorities to run larger deficits to stimulate the economy. Now they are afraid that progressive radical solutions to the weak economy, including Modern Monetary Theory, may emerge to discredit both fiscal policy and central banking at the same time. This is a clear-cut case of pointing fingers.
The fiscal authorities have created multitrillion-dollar deficits even without special stimulus programs. Debt-to-GDP ratios are at the highest levels since World War II and high enough to slow growth independent of monetary policy. The extreme monetary experiments of the central bankers never should have been attempted with or without fiscal policy.
We are now left to live with the consequences, including uncertainty and slow growth. Worse yet, the central banks will be unprepared to deal with the next crisis since they never cleaned up their mess from the last one.
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