Page 53 - COVID-19: The Great Reset

these circumstances, help in the form of grants and debt relief,
and possibly an outright moratorium, [46] will not only be needed

but will be critical.

These are unprecedented programmes for an unprecedented
situation, something so new that the economist Carmen Reinhart
has called it a “whatever-it-takes moment for large-scale, outside-

the-box fiscal and monetary policies”. [47] Measures that would
have seemed inconceivable prior to the pandemic may well
become standard around the world as governments try to prevent
the economic recession from turning into a catastrophic

depression. Increasingly, there will be calls for government to act
as a “payer of last resort” [48] to prevent or stem the spate of mass
layoffs and business destruction triggered by the pandemic.

All these changes are altering the rules of the economic and

monetary policy “game”. The artificial barrier that makes monetary
and fiscal authorities independent from each other has now been
dismantled, with central bankers becoming (to a relative degree)
subservient to elected politicians. It is now conceivable that, in the

future, government will try to wield its influence over central banks
to finance major public projects, such as an infrastructure or green
investment fund. Similarly, the precept that government can
intervene to preserve workers’ jobs or incomes and protect

companies from bankruptcy may endure after these policies come
to an end. It is likely that public and political pressure to maintain
such schemes will persist, even when the situation improves. One
of the greatest concerns is that this implicit cooperation between

fiscal and monetary policies leads to uncontrollable inflation. It
originates in the idea that policy-makers will deploy massive fiscal
stimulus that will be fully monetized, i.e. not financed through
standard government debt. This is where Modern Monetary

Theory (MMT) and helicopter money come in: with interest rates
hovering around zero, central banks cannot stimulate the
economy by classic monetary tools; i.e. a reduction in interest
rates – unless they decided to go for deeply negative interest

rates, a problematic move resisted by most central banks. [49] The
stimulus must therefore come from an increase in fiscal deficits

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