GLOBAL CENTRAL BANKS SEEM TO NEED SOME FISCAL HELP!

Central banks have historically been expected to lower short-term interest rates in order to jump-start  weakened economies.  Following The Great Recession (4Q07-1Q09), the Federal Reserve devised a new bond-buying tool, “Quantitative Easing”, as another means of pumping liquidity into the Money Supply. But with short-term rates quite low in many nations, or even negative in some, monetary tools will not have much impact now.

In early 2009, U. S. President Barack Obama recommended a Stimulus Plan to Congress, which would have had the U. S. Treasury allocate funds to re-build our Nation’s Infrastructure, and provide much-needed extra cash to the states.  Republicans in Congress preached Austerity; however, they did provide a portion of the requested Stimulus funding.  Although the full package would have helped improve the economy even more, at least the amount allocated did enable America to turn things around.

The global economy is still suffering from the after-effects of that last recession.  And there doesn’t seem to be a glimmer of hope on the monetary front—low interest rates, the same for bond yields, many currencies have declined, commodities are depressed and Europe, as I see it, is at the beginning of a Brexit-caused recession, which might go global.   As it seems, everything is on sale, but no one can afford to buy!

Literally every nation has bridges, tunnels, highways, air and seaports, railroad beds, etc., that are totally warn-out.  They surpassed their useful lives decades ago.  Each year that they are not fixed, or replaced, the ultimate bills just mount up.  Repairing necessary Infrastructure worked during The Great Depression, back in the 1930s.  Why might it not do so again today?

Just think: if you were going to buy a big-ticket item—perhaps a house—wouldn’t the best time to finance it be now, with the lowest rates in, what, a century?  We know that there are unemployed people out there, and more will be joining them.  Put them all to work, give them a paycheck, which they will use to buy things their family needs.  And state and local governments will find that the safety net demands on them will decline.

I realize that many nations have fought using Stimulus over the past decade; but, Austerity just hasn’t worked.  Wouldn’t this suggest that, perhaps, some Stimulus might be called for.  It sure couldn’t hurt!

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  1. #1 by Shrey Srivastava on July 12, 2016 - 7:57 AM

    Thanks for this blog post regarding central banks; I really enjoyed it and am definitely recommending this blog to my friends and family. I’m a 15 year old with a blog on finance and economics at shreysfinanceblog.com, and would really appreciate it if you could read and comment on some of my articles, and perhaps follow, reblog and share some of my posts on social media. Thanks again for this fantastic post.

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