Global policymakers adopted a "do whatever it takes" attitude to the Covid-19 crisis encompassing aggressive monetary and fiscal easing and generous loan-guarantee programmes.
Fiscal policymakers have seemingly put their concerns about budget deficits on hold when it comes to addressing the most significant economic crisis in 75 years or more.
Although the global stimuli that have been enacted in recent months are extraordinary in size and scope, it does not appear that policymakers are finished for the year.
Financial markets have seemingly followed a predictable script in responding to the unfolding news of the Covid-19 crisis and attendant stimulus.
Earlier in the year, return-seeking assets - supported by optimistic earnings expectations, a relatively sanguine economic outlook, and historically low interest rates - were "priced to perfection".
As it became increasingly apparent that the world was engulfed in a pandemic and the global economy was heading for a deep recession, these optimistic underpinnings collapsed and prices of return-seeking assets fell into bear-market territory.
Subsequently, return-seeking asset prices partially recovered as global central bankers and fiscal authorities launched aggressive countercyclical programmes.
Extraordinary stimulus/longer-term risks
Despite the favourable reception that the financial markets have initially given to the extraordinary stimulus of 2020, we have outlined five questions which can and should be raised concerning whether markets will remain forbearing over the longer term.
Firstly, will the expanding debt levels in response to the current recession impede future growth?
The increases in national debt levels that are expected over the cyclical horizon should only be a minor headwind for most economies.
They appear quite manageable relative to GDP, particularly in a low interest rate environment.
We believe that continuing low interest rates is the key variable. If rates were to rise materially, investors might be less forbearing about current national debt levels.
Our second question is one of the most frequently asked - will recent extraordinary stimuli rekindle inflation?
We believe this is possible but unlikely. Central bankers have learned some valuable lessons since the 1970s and as long as they maintain the sound policies that they have followed since the early 1980s, inflation should remain contained.
Mistakes are possible but we believe that, particularly at current debt levels, deviating from sound policies would be counterproductive.
It would no doubt reawaken the "bond vigilantes" of the 1970s and rates would rise sharply, pushing governments' interest payments to onerous levels.
Our third question asks whether aggressive government deficit spend will lead to "money printing" programmes such as MMT (Modern Monetary Theory) favoured by populist politicians and economists?
This is something we must be wary of, however, if future debates on this issue focus on economic fundamentals, we shouldn't have any worry.
Current quantitative easing programmes and budget deficits involve debts that are carried on balance sheets of central banks and governments, according to Refinitiv.
Fourth, if the global economy, particularly the major developed market countries, slipping into the phenomenon labelled "Japanification"?
This depends largely on how it is defined. If we equate it with the slow response of Japan's policymakers thirty-years ago to the problems of under-capitalised banks, zombie corporations, and deflation that beset their economy at that time, then we would answer no.
DM banks currently have strong balance sheets. Recently launched corporate lending programmes appear to be well designed for the most part.