PremiumMonetary Stimulus: The Hangover Risk in a World Addicted to Debt

Fear of a financial crisis, in addition to the inevitable recession caused by Covid-19, led central banks to inject liquidity into the system, in gigantic doses of asset purchases. Revenue is working, but the 'Quantitative Easing' addiction can result in a hangover, and while inflation is unlikely to accelerate, the truth is that central banks bought more risk and created a mountain of debt that one day will have to be paid, warn economists consulted by JE.

"Six billion dollars is an impressive amount, equivalent to more than half of the global total Quantitative Easing (QE) accumulated between 2009 and 2018," said Robert Sierra, director of Fitch's team of economists, referring to the value of assets that the rating agency sees central banks buying in 2020 to contain the economic impact of Covid-19.

According to Fitch, the balance sheet of the Federal Reserve (Fed) in mid-March stood at $ 4,3 billion, but is expected to end the year close to ten billion, also driven by currency swaps in the context of global demand for dollars and for participating in direct corporate loan programs. The balance sheet of the European Central Bank (ECB), which stood at around 4,7 billion euros at the end of 2019, could easily exceed 6 billion this year.

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