Central Banks Should Consider Giving People Money
Central banks should start issuing money to people in a quantitative easing move aimed at jump-starting economies, a fund manager has suggested.
This is due to a global slowdown that has pushed interest rates in some markets into negative territory.
Eric Lonergan, a macro fund manager at M&G Prudential, suggested that the era of central banks controlling money using interest rates might be coming to an end and they may start giving it away in the future.
“In the past, central banks set the price of money using interest rates. In the future, it seems, they will be giving it away,” he wrote in an opinion piece.
Listen to GHOGH with Jamarlin Martin | Episode 64: Tunde Ogunlana
Part 1: Jamarlin talks to Tunde Ogunlana, the CEO of Axial Family Advisors, a wealth planning firm. We discuss what an inverted yield curve usually means in the bond market and why Federal Reserve Chair Jerome Powell can’t tell the public the truth when he sees big trouble on the horizon. We also discuss the global economy being trapped between massive debt and a starting place of low rates at the end of the economic cycle. This episode was recorded on May 29, 2019.
The world economy is expected to enter a recession by the end of 2019, pushed over the edge by trade tension between the U.S. and China, Morgan Stanley said in a research report released earlier this month.
A recession would jolt central banks into action, cutting interest rates to perk up investment, but with interest rates already in the negative or close to zero, there would be little room to do so.
Lonergan refers to the book “The Case for People’s Quantitative Easing” by the economist Frances Coppola, which looks at how the Australian central bank sent cheques to households during the 2008 financial crisis to help their economy avoid a recession.
The suggestion would, however, face challenges in the form of lack of proper legislation in countries like the U.S. and the U.K., along with administrative loopholes, he said.
Critics have said that this idea is easier said than done as it overlooks some serious issues. For example, withdrawing this “free money’ from the economy would be difficult and could create a distortion in money supply.