The Central Banks' Battle the Pandemic

EDITORS NOTES: This is an interesting article about how the big central banks are fighting the COVID-19 battle. Without a sure or effective treatment, the central banks may just be getting started....

WASHINGTON/FRANKFURT (Reuters) - Big central banks are buying from an expanding menu of government bonds, corporate debt and consumer loans to help businesses and households through the coronavirus pandemic — and no one knows whether they can stop.

The best-case scenario sees infection rates slow, commerce resume and people return to work this year.

In the extreme case that a recurring virus requires further damaging lockdowns, the U.S. Federal Reserve and its peers float the whole boat — government debt, corporate debt, perhaps even financing for mortgages and paychecks.

The social, political and economic implications of taking economies offline for an extended period, underwritten by governments and struggling to return to normal, could run deep.

Time out of work erodes skills. Business failures destroy wealth and depress investment. Cheap money and cash transfers risk fueling asset bubbles that widen the gap between rich and poor.

“It gets to the question: At what point are we worried with just how much a role the Fed is playing?” said Kathryn Judge, a Columbia Law School professor who studies financial markets.

“If they are the only actor and people are worried about liquidity and access to finance, how much pressure comes to bear? Longer term it is disconcerting.”

The Bank of England announced in May that it would buy more government bonds just as Britain’s Treasury said it would incur more debt to pay the wages of laid-off workers.

BoE policymaker Jan Vlieghe said the unprecedented coordinated action resembled what might happen “if we were the central bank of the Weimar Republic or Zimbabwe”, both disastrous examples of government ordering central banks around. The difference, Vlieghe said, was that no one in the government told the BoE what to do.

Find out what Japan is doing different and how it relates to what the US did in 2008 in the rest of the article at https://www.reuters.com/article/us-health-coronavirus-cenbanks/central-banks-pandemic-battle-could-stretch-into-an-infinity-war-idUSKBN22G1EA