With entire industries shuttered and unemployment soaring, only public spending is keeping millions of households and businesses afloat. The governments on the hook for this relief effort are running up some of history’s biggest budget deficits. And they’re paying at least some of the bills with what are effectively loans from their own central banks –- debt that can be rolled over indefinitely, and is really more like money.
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In the U.S., the Federal Reserve is set to buy $3.5 trillion of bonds this year, according to Bloomberg Economics estimates. Most of that will be Treasuries, covering the best part of a fiscal shortfall forecast to reach at least $3.7 trillion. Nobody knows when the debt will be offloaded from the public balance sheet into the hands of private investors, if it ever is.
Similar stories are playing out across developed economies from Europe to Japan -- and even in some emerging markets, with Indonesia and Poland joining the fray.
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Inflation has remained subdued or non-existent, however much governments borrowed or central bankers lent. Its long absence has spurred calls for even bolder policies to drag economies out of the virus slump, even if that means further blurring the lines between debt and money.
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