The Next Downturn Could See a ‘Radicalization’ of Financial Policies

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  • Another economic crisis could prompt an even more aggressive response than the last one, an AB Bernstein economist argues in a paper.
  • The response could be any mix of three approaches: Modern Monetary Theory, negative interest rates or so-called helicopter money.
  • Such moves could come either due to an economic slowdown or populist political pressure, the analysis states.


Policymakers pulled out all the stops to fix the financial crisis, but they may have to get even more extreme when the next downturn hits.

Future crises could see a “radicalization” of the types of measures taken to jolt the economy out of its last malaise, according to an analysis by AB Bernstein that looks both at the waning effectiveness of current attempts and the shape future efforts will take.

Essentially, the view is that next time around policymakers will go even further. That means the use of “Modern Monetary Theory” — in which even more government debt is used to spur growth — along with negative interest rates and the possible step of distributing “helicopter money” or direct cash from central banks like the Federal Reserve.

Collectively, the actions are a far more ambitious version of what Bernstein’s experts call the “compulsive stimulus model” that has used debt growth and asset bubbles to drive cyclical growth at a time when the long-term trend for the U.S. economy is below-trend compared to historical norms.


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