The FT recently called for a serious debate on the idea that budget deficits should be permanently monetised by the central banks. So far the most prominent response from an active policy maker has come from Lord Adair Turner, the outgoing Chairman of the UK Financial Services Authority, and a former candidate to become Governor of the Bank of England .
Lord Turner is under no illusion that his discussion of this policy option will open him to ridicule or worse in some quarters. He expects to be called a “dangerous man”, which is a strange description for this typically cerebral product of McKinsey. Yet he considers this risk worthwhile because he believes there should be a rational comparison between OMF or overt monetary finance (a less inflammatory term than the usual “helicopter money”) and the quantitative easing favoured by today’s central bankers.
In public, central bankers like Ben Bernanke, Mark Carney and of course the entire ECB remain firmly opposed to this idea. But it is probably being implemented in Japan, and I have been surprised (and worried) at the willingness of mainstream central bankers in the US and the UK to contemplate the option in private. This blog serves as a reminder of the serious dangers involved. Read more