2020-10-19bloomberg.com

Fiscal policy, which fell out of fashion as an engine of economic growth during the inflationary 1970s, has been front-and-center in the fight against Covid-19. Governments have subsidized wages, mailed checks to households and guaranteed loans for business. They've run up record budget deficits on the way -- an approach that economists have gradually come to support, ever since the last big crash in 2008 ushered in a decade of tepid growth.

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Financial markets, where bond vigilantes were once reckoned to exert a powerful check on deficit-spending governments, are ready to lend them money at very low interest rates. The short-run concern for investors is that politicians will stall the recovery by spending too little. JPMorgan predicts that this year's big fiscal boost to the global economy may turn into a 2.4 percentage-point drag on growth in 2021, as virus relief programs expire.

The same worry weighs on monetary authorities, whose autonomy from the rest of government was designed so they could push back against too-loose fiscal policy. Running short of their own tools to juice economies, with interest rates already at zero or below, central banks are now doing the opposite. They're calling for more deficit-spending, buying up swaths of the resulting debt, and promising low borrowing costs far into the future.



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