Reconceptualizing Central Bank Unconventional Policies: Long Positions on No-Growth Capitalism

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Abstract

The ballooning of central bank balance sheets after the 2007 crisis in core capitalist countries has attracted critical attentions of economists and financial media. The monetarist economic theory instinctively problematizes such expansion of central bank balance sheets as an inflationary phenomenon. Minskian alternative that questions the neutrality of money in neo-classical economics, however, justifies central bank activism which is necessary to bring capitalism back to stability after inevitable destabilising endogenous credit expansions. Clearly there is a policy convergence in both liberal market economies and co-ordinated market economies whereby central banks use unconventional monetary policies to generate growth and employment. This article proposes an alternative framing of central bank unconventional policies after the 2007 crisis by shifting the focus to the actual role of central banks as holders of long positions on sovereign debt and non-tradable bank assets. In the process of injecting liquidity to the dysfunctional post-crisis banking system through quantitative easing programmes central banks have ended up investing in sovereign risk and bank credit risk with unintentional allocative and distributive consequences. This so-called central bank put is on a capitalism that hardly achieves positive growth rates in core capitalist countries. Therefore the risks of holding long position on a low-growth capitalism pose unknowable exit costs to the economy and society in core capitalist countries.

Keyword(s)

central banking, financial crisis, capitalism, monetary policy

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