Invest
How will printing money stabilise the economy?
Following a rate reduction to record lows and the central bank starting unconventional monetary policy, a leading economist has explained how the central bank will need to get creative in order to support growth.
How will printing money stabilise the economy?
Following a rate reduction to record lows and the central bank starting unconventional monetary policy, a leading economist has explained how the central bank will need to get creative in order to support growth.
According to AMP Capital chief economist Shane Oliver, now that interest rates have hit zero, the central bank has started Modern Monetary Theory (MMT) through quantitative easing.
“When interest rates have already fallen to zero, in order to support the economy, central banks have been turning to boosting the quantity of money in the economy. Hence, quantitative easing,” Dr Oliver explained.
Dr Oliver said that if a country borrows in its own currency (which Australia does – so there is no risk of a currency crisis) and there is more risk of deflation than inflation, then there is nothing wrong with using money printing to finance government spending, which can be allocated in an equitable way.
What is the downside of MMT
The challenge with helicopter payments or printing money is the potential for hyperinflation, which sees a currency devalue and the price of goods increase, Dr Oliver explained.
“The biggest risk in this whole strategy is that the expansion of the money supply results in a surge in inflation. Early last decade, when QE became popular, there was much talk of hyperinflation and the US becoming the next Zimbabwe, but it didn’t because while narrow measures of money (cash and bank reserves) surged, broader money supply measures like credit growth remained subdued, and at the same time, spare capacity in the economy remained high,” Dr Oliver said.
The chief economist said that once economic activity has recovered, there is a bigger risk of inflation and central banks may have to reverse easy money.
“But that’s an issue for some time away. We still have to end the shutdowns, and all go back to work and spending first,” Dr Oliver concluded.
About the author
About the author
Economy
CPI data another piece in RBA's interest rate decision puzzle, says REIA
The latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) shows that inflation rose 3.4% in the 12 months to February 2024, unchanged from the previous two months, ...Read more
Economy
Including passive job seekers in unemployment measure doesn't impact economic cycle view, study finds
New research from e61 Institute has found that while current unemployment measures may not capture all job seekers, broader definitions that include passive job searchers do not provide better ...Read more
Economy
Survey reveals heightened job security concerns among IT workers in 2024
A recent survey conducted by Authority Hacker has revealed that 89.66% of IT workers in the United States have increased concerns about job loss in 2024. Read more
Economy
Australian founders adapt to the challenging fundraising environment with optimism and strategic shifts
The landscape for start-up funding in Australia has been increasingly challenging, but this has not dampened the spirit of the country's entrepreneurs. Read more
Economy
Signs point to possible US economic 'soft landing' in ClearBridge analysis
The US economy may be steering towards a 'soft landing' despite mixed signals from the stock market, according to a recent analysis by ClearBridge Investments. Read more
Economy
Alternative fund managers predict capital raising surge in 2024
Alternative investment fund managers are predicting a sizable increase in capital raising efforts in 2024, according to a global study by Ocorian, a leading alternative investment fund administratorRead more
Economy
Understanding the economic indicators that affect your earnings
The landscape of personal finance is profoundly influenced by broader economic trends and indicators. Read more
Economy
Navigate market turbulence with expert advice: no crystal ball needed
In an era fraught with investment market uncertainties, from fluctuating interest rates to geopolitical strife, seasoned market experts are guiding investors through the mire, offering sage advice on ...Read more
Economy
CPI data another piece in RBA's interest rate decision puzzle, says REIA
The latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) shows that inflation rose 3.4% in the 12 months to February 2024, unchanged from the previous two months, ...Read more
Economy
Including passive job seekers in unemployment measure doesn't impact economic cycle view, study finds
New research from e61 Institute has found that while current unemployment measures may not capture all job seekers, broader definitions that include passive job searchers do not provide better ...Read more
Economy
Survey reveals heightened job security concerns among IT workers in 2024
A recent survey conducted by Authority Hacker has revealed that 89.66% of IT workers in the United States have increased concerns about job loss in 2024. Read more
Economy
Australian founders adapt to the challenging fundraising environment with optimism and strategic shifts
The landscape for start-up funding in Australia has been increasingly challenging, but this has not dampened the spirit of the country's entrepreneurs. Read more
Economy
Signs point to possible US economic 'soft landing' in ClearBridge analysis
The US economy may be steering towards a 'soft landing' despite mixed signals from the stock market, according to a recent analysis by ClearBridge Investments. Read more
Economy
Alternative fund managers predict capital raising surge in 2024
Alternative investment fund managers are predicting a sizable increase in capital raising efforts in 2024, according to a global study by Ocorian, a leading alternative investment fund administratorRead more
Economy
Understanding the economic indicators that affect your earnings
The landscape of personal finance is profoundly influenced by broader economic trends and indicators. Read more
Economy
Navigate market turbulence with expert advice: no crystal ball needed
In an era fraught with investment market uncertainties, from fluctuating interest rates to geopolitical strife, seasoned market experts are guiding investors through the mire, offering sage advice on ...Read more