The Biden stimulus, the Federal Reserve and the everything bubble

William White participated in a panel on 24 March sponsored by the American Enterprise Institute. Moderated by Alex Pollock, the panel consisted of White, Jeffrey Frankel from Harvard University, Fabio Natalucchi of the IMF and Desmond Lachman of the AEI.  White addressed the question of the resilience of the financial system should the “everything bubble” burst. He concluded that, due to ultra easy monetary policy over many years and regulatory shortcomings,  the financial system now had “morbidities” that could increase considerably the dangers of financial instability in the face of shocks.


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Strategic challenges arising from ultra-low interest rates and quantitative easing

On 18 February, William White made  a webinar presentation to the Global Risk Institute, a Toronto based think tank, with Jason Stewart as the Moderator. The presentation was based on a forthcoming Working Paper to be published by INET. White questions the wisdom of having relied so much  on monetary policy to provide economic stimulus, particularly over successive cycles. By encouraging the accumulation of debt, often for unproductive purposes, monetary stimulus becomes increasingly ineffective over time. Moreover, it threatens financial stability in a variety of ways, leads to real resource misallocations that lower potential growth, and finally produces a “debt trap” that cannot be escaped without significant economic costs.

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The centrality of central banks during the covid era

William White made a presentation to The Institute for International and European Affairs in Dublin on 11 December.  the topic was the role played by central banks during the covid-19 pandemic and the implications for central banks going forward. White suggested that central banks had successfully restored order in financial markets in the spring, which was necessary, but that their actions were essentially “more of the same” policies that they had been pursuing for many years. The cumulative effect of those policies had been a massive increase in global debt ratios and the emergence of other imbalances that now had to be confronted and resolved by governments rather than central banks. White’s talking notes and a video recording can be found below.


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Deregulation for the Future

William White, along with Daniela Gabor, participated in a 10 November webinar organized by Green Members of the European Parliament. Gabor focussed on desired changes to European financial regulation, once the pandemic is over.  White paid most attention to the issue of financial forbearance during the pandemic and the need for a final resolution of debt problems over time. He began by noting that ultra easy monetary policy was increasingly ineffective in stimulating aggregate demand, that its unwelcome side effects were becoming increasingly obvious, and that “exit” was becoming increasingly difficult. He then went on to document how  regulatory forbearance in Europe suffered from exactly the same three shortcomings. This reflects the fact that, just as covid-19 is especially harmful to patients with preconditions, the European banking system has been weakened by non-performing loans and very low profitability. These underlying issues must be resolved  before the financial system can play its full role in economic recovery.

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OECD (NAEC) Panel on “The financial system”.

The NAEC (New Approaches to Economic Challenges) group at the OECD organized a panel discussion on the occasion of the publication of a book called “The financial system”. The panel was chaired by Rana Foroofar, Associate Editor of the Financial Times, who concluded by saying that the NAEC group “is doing possibly the most important conversation building in the world on these topics”. William White discussed his chapter in the NAEC book, in particular the practical lessons for policy makers from embracing the concept of the economy as a complex, adaptive system.


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Creating resilient futures: climate, COVID and the economy

William White contributed to a panel on 23 September that was organized by the Balsillie School of International Affairs in Waterloo, Canada. Other panelists were Diana Fox Carney, a climate and policy expert, and John Hancock, a Senior Adviser to the General Director of the WTO. They exchanged views on the character of a sustainable global economy, on the changes required to achieve such a state of affairs, and the various impediments to doing so. It seemed generally agreed that  unpalatable  (ie costly and risky) policy solutions will now be required if we are to avoid disastrous outcomes.  White finished by suggesting that politicians’ biggest challenge will be to convince ordinary citizens, as well as the rich and powerful, that these needed policy changes are actually are in their own best interests.


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A global asset price bubble in a weak global economy

On September 21, Alex J. Pollock welcomed on behalf of the American Enterprise Institute,Tobias Adrian, Jeffrey Frankel, Desmond Lachman, and William White for a follow-up conversation to their April discussion on the developing disconnect between asset prices and economic fundamentals.  White described the undesirable consequences of past monetary policy by outlining the trend of falling interest rates, accumulating debt, and declining debt quality. He suggested that policy makers have made two grave errors. They did not  appreciate the risks of debt accumulation, financial market distortions and resource misallocations stimulated by repeated cycles of monetary easing. Moreover, they had eased monetary policy inappropriately in the face of positive supply side shocks, largely in the years leading up to the Great Financial Crisis.  We are now in a “debt trap”, worsened by the pandemic,  from which it will be hard to escape.

Links to the conversation and White’s background notes are found below.



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Five considerations for a sustainable recovery

On 16 September, William White participated in a webinar panel chaired by John Orchard, the CEO of OMFIF. Other panelists were Robert Holzmann, the Governor of the Austrian National Bank, Pierre Siklos of the Balsillie School of International Affairs (BSIA) in Waterloo, and Danae  Kyriakopoulou, Chief Economist at OMFIF. The discussion was motivated by a paper, written by William White, and published on the same date by both OMFIF and the BSIA.



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Beyond the lockdown: Monetary policy and financial stability in the transition

William White gave a webinar on 9 June 2020 for the Global Risk Institute. He began by explaining how the global economy developed a number of “dangerous preconditions” prior to the onset of the covid 19 pandemic. In particular, global debt ratios had swelled to unprecedented levels under the influence of extremely accomodative monetary conditions.  The fiscal and monetary response to the pandemic, in the advanced market economies, will further increase debt ratios with implications for both financial stability and inflation. Mr White noted that, unfortunately,  these macroeconomic challenges will be accompanied by other challenges as well. It is clear that current trends with respect to wealth  distribution and environmental damage are not sustainable. While solutions can be proposed for all of these challenges, they will be costly and there will be political resistance. People must be convinced that solutions that are “unpalatable” are preferable to outcomes that are “disastrous”. The need for debt restructuring needs particular attention.

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Coronavirus and the bursting of the everything bubble

On 22 April, William White participated in a panel organized by the American Enterprise Institute in Washington. Other participants were Tobias Adrian (IMF), Jeffrey Frankel (Harvard University) and Desmond Lachman (AEI).  In addition to responding to various questions posed by the moderator, Alex Pollock, Mr. White led a discussion on how debt accumulation increases the exposure of the economy to exogenous shocks – like the coronavirus. While the current response of  monetary and fiscal stimulus is appropriate, both policies serve to raise debt levels even further. Significantly more attention needs to be paid to judicial and administrative procedures for restructuring debt, both private and public, in order to avoid more disorderly and costly outcomes.



Posted by williamw in Presentations