JM Finn's Jon Cunliffe: How closer fiscal and monetary policy could get US out of trouble

Plans to 'inflate away' debt burden

In the aftermath of the global financial crisis, the focus of policymakers was on shrinking government indebtedness via curbs on government spending.

This was driven in part by the Eurozone sovereign debt crisis of 2010-12, where the bond market vigilantes tested the debt sustainability of the peripheral sovereign borrowers by driving up borrowing rates.  The policy prescription of austerity did not, however, deliver the intended outcome. In essence, corporates and households were equally reluctant to spend and invest and the resulting collective retrenchment delivered weak growth and even greater levels of borrowing as a proportion of national income. Since the Covid-19 pandemic, there has been a significant shift in the thinki...