Brian Kantor Columnist

What shape will the global economy take after the lockdowns are fully relieved? How fast can it grow when something like normality returns? There are those who argue that the major economies have entered an extended period of economic stagnation, that demand will have difficulty keeping up with even modest extra supplies of goods, services and labour. That monetary policy has shot its bolt because interest rates cannot go much below zero.

We should dismiss such underconsumption theories. Monetary stimulus comes not only from lower interest rates but also occurs directly as excess supply of money is converted into demand for other goods, services and assets. Higher asset prices and greater wealth also have positive effects on spending. There is no technical limit to the amount of money central banks can create to stimulate more spending. The only limit is their own judgment as to how much extra is necessary to get an economy running again.

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