(Reuters) – Following are five big themes likely to dominate the thinking of investors and traders in the coming week and the Reuters stories related to them.
1/ TIME FOR SOME VOODOO?
Years - Euros - Stimulus - Interest - Rates
So after three years of pumping 2.6 trillion euros worth of stimulus and cutting interest rates to minus 0.4 percent, the ECB has admitted its growth/inflation targets remain elusive and those emergency-era monetary settings will have to persist for a lot longer. The ECB is not alone. Doubts abound around the world about whether developed economies have enjoyed lasting benefit or been fully repaired by trillions of dollars of bond buying “quantitative easing” from central banks over the past decade. Japan has been in this funk for decades. The Federal Reserve is finding “normalization” of its policy settings difficult. Of late, slowing economic momentum has seen Australia, Canada and Sweden turning tail on policy tightening plans.
All this speaks loud and clear to the current economic policy zeitgeist – a raging debate around MMT, or Modern Monetary Theory, effectively a reworking of monetary theory by the left of the U.S. Democratic Party ahead of next year’s elections. MMT advocates posit that policymakers in countries fortunate enough to manage the world’s main reserve currencies should, as long as inflation remains as subdued as it is right now, just keep interest rates at zero and print money to invest in environment and infrastructure projects.
Interest - Rates - Inflation - Government - Deficits
With interest rates near zero and inflation structurally depressed, they argue that government deficits and debt levels far higher than the sometimes arbitrary limits set by current orthodox policy can be both sustainable and productive in seeding higher and better-quality economic growth in the longer term.
The idea is akin to British opposition Labor leader Jeremy Corbyn’s proposal of “People’s QE” a few years back. Some politicians across Europe too, especially...
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