{"text":[[{"start":7.89,"text":"The writer is author of ‘Blood and Treasure, the Economics of Conflict from the Vikings to Ukraine’"}],[{"start":14.89,"text":"For decades, macroeconomic policy in advanced economies has generally followed a widely understood division of responsibility. The month-by-month management of the business cycle, and especially of inflation, is the task of central banks. Outside of severe downturns such as those in 2008 and 2020, finance ministries have stepped back from attempting to manage demand. They instead focus on attempting to stabilise or reduce the ratio of government debt to GDP."}],[{"start":51.54,"text":"The default scenario across the rich world now is an independent central bank setting monetary policy in order to hit a publicly stated inflation target. While a handful of exceptions exist, such as Denmark’s fixed exchange rate target, such arrangements have become increasingly common since the mid-1990s. But can they continue to operate smoothly in a time of high government debt?"}],[{"start":80.48,"text":"Throughout the 1950s and 1960s, and in many cases, well into the 1970s and 1980s, things were less clear-cut. Fiscal policy was widely regarded as the default tool for managing the fluctuations of the business cycle. In most countries, monetary policy was rarely independent — in theory or in practice — from central government. And while the setting of interest rates was often concerned with maintaining the value of external exchange rates, monetary policymakers always kept a wary eye on government debt burdens."}],[{"start":119.43,"text":"Nowadays, central banks are not supposed to think about the impact of their monetary policy calls on government debt costs. But rate decisions have a material and unavoidable impact on the burden of government debt. Raising or lowering interest rates in order to hit an inflation target eventually feeds back via government bond markets into higher or lower debt service costs for taxpayers. President Donald Trump certainly seems alive to this, regularly taking to social media to berate the Federal Reserve for not cutting interest rates and saving, as he puts it, “trillions” of dollars in interest payments for the government."}],[{"start":162.77,"text":"Even leaving aside the often loud noises from the White House, in reality, the relationship between monetary policy and government funding is a lot more complicated today than it was in the late 1990s or 2000s."}],[{"start":179.75,"text":"Successive rounds of quantitative easing following the financial crisis of 2008-09 have resulted in many leading central banks holding a large proportion of the total debt of their respective governments as they expanded their balance sheets in the hope of stimulating growth and inflation. The winding in of those bloated balance sheets — selling government bonds back to the market via the process of quantitative tightening — is proving tricky to manage amid outbreaks of turbulence in bond markets."}],[{"start":214.44,"text":"The last time government debt ratios were as high as today was in the decades immediately following the second world war. Then, many central banks were subject to what came to be known as fiscal dominance, with concerns over inflation subordinated to helping out with public budgetary management. That was all part and parcel of a wider package of policies now termed financial repression; an effort to steer capital into funding government borrowing at low, or often negative, real interest rates."}],[{"start":251.59,"text":"Decades of financial repression were, in effect, a tax on savers that also resulted in capital misallocation and almost certainly contributed to inflation soaring in the 1970s. But as a debt management policy, it was highly successful. Between 1945 and 1980, the real interest rate on government debt was negative more than half of the time, accounting for the bulk of the large reduction in debt ratios across the developed world."}],[{"start":285.13,"text":"Since inflation targeting took off, the ratio of government debt to GDP across many leading economies has more than doubled. All things being equal, the greater the debt stockpile, the greater the impact of changes in interest rates on government budgets and, ultimately, taxpayers."}],[{"start":307.28,"text":"While it may have been possible for central banks to set monetary policy without worrying about the debt management implications for the finance ministry 20 years ago, that is becoming ever trickier. Even if a full return to the financial repression of the 1950s or 1960s is unlikely, so too is a rerun of the neat divisions of the 1990s or 2000s. The lines between monetary and fiscal policy will be blurred for some time to come."}],[{"start":348.61,"text":""}]],"url":"https://audio.ftmailbox.cn/album/a_1755602816_3322.mp3"}