Supply Shock

Dr. Claudio Borio & Joseph Wang on Fiscal Dominance, Financial Instability & the Boundaries Of Debt-Fueled Economic Growth

Oct 26, 2023

Renowned economist Dr. Claudio Borio and Joseph Wang discuss the interplay of monetary and fiscal policy, risks of high debt levels, inflation regimes, and the implications of credit losses. Touches on the role of central banks in shaping financial cycles and the need for regulation.

01:03:08

Episode guests

Claudio Borio

Joseph Wang

AI Summary

AI Chapters

Episode notes

Podcast summary created with Snipd AI

Quick takeaways

Monetary and fiscal policy are interconnected and influence the economy through similar channels.

Globalization and central banking dependence are related due to shared political beliefs in open markets and small government.

The level of independence in monetary policy and the fiscal position impact the inflationary effect of fiscal stimulus and central banking dependence.

Deep dives

The Tight Link between Monetary and Fiscal Policy

Monetary and fiscal policy are fundamentally linked and inextricably connected. They are the two key policy levers of the state when it comes to macroeconomic policy. These policies back each other up and have privileged access to resources. The channels through which they influence the economy, including financial conditions, are very similar. The balance sheets of the government and the central bank are also interconnected. While there may have been periods of higher independence for monetary policy in the past, the interplay between monetary and fiscal policy is becoming increasingly complex and intertwined.

Introduction

6min

Impact of Monetary Policy Independence on the Inflationary Effect of Fiscal Stimulus

4min

The Risks of High Levels of Debt

12min

Understanding the Buildup of Financial Imbalances and the Role of Regulation

3min

Inflation Regimes and Interest Rates

9min

Monetary Aggregates and Inflation

23min

Implications of Credit Losses, Financial Stress, and Constraints on the Official Sector

6min

This episode is from another of Blockworks' shows Forward Guidance. We hope you enjoy & remember to go follow Forward Guidance:

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Today’s interview is a very special one. Dr. Claudio Borio, renowned economist and Head of the Monetary and Economic Department at the Bank For International Settlements (BIS), joins Joseph Wang of Fedguy.com and Jack Farley for a wide-ranging discussion on the nature of financial instability and the interplay of monetary policy and fiscal policy.

Borio shares insight from recent BIS research on inflationary regimes, financial cycles, and the boundaries of debt-fueled growth. Borio notes that the materialization of interest rate risk has so far been seen in the banking sector, but that we have yet to credit risk. Filmed on October 17, 2023.

Some of Borio’s and the BIS’ works mentioned in this interview:

“Monetary and fiscal policy: safeguarding stability and trust,” June 2023 Presentation in Basel, Switzerland, Claudio Borio

https://www.bis.org/speeches/sp230625a_slides.pdf

“The two-regime view of inflation,” March 2023, Claudio Borio, Marco Lombardi, James Yetman and Egon Zakrajšek

https://www.bis.org/publ/bppdf/bispap133.pdf

“International banking and financial market developments” BIS Quarterly Review, September 2023

https://www.bis.org/publ/qtrpdf/r_qt2309.pdf

“Does money growth help explain the recent inflation surge?” 26 January 2023, Claudio Borio, Boris Hofmann and Egon Zakrajšek

https://www.bis.org/publ/bisbull67.pdf

“On money, debt, trust and central banking,” January 2019, Claudio Borio

https://www.bis.org/publ/work763.pdf

“Navigating by r*: safe or hazardous?” November 2021, Claudio Borio

https://www.bis.org/publ/work982.pdf

“The financial cycle and macroeconomics: What have we learnt?” December 2012, Claudio Borio

https://www.bis.org/publ/work395.pdf

Follow Bank For International Settlements on Twitter https://twitter.com/BIS_org

Follow Joseph Wang on Twitter https://twitter.com/FedGuy12

Follow Jack Farley on Twitter https://twitter.com/JackFarley96

Follow Forward Guidance on Twitter https://twitter.com/ForwardGuidance

Follow Blockworks on Twitter https://twitter.com/Blockworks_

(00:00) Introduction

(00:32) The Interplay Between Monetary Policy & Fiscal Policy

(09:50) High Levels Of Government Indebtedness As A Risk

(12:35) Just How Interest Rate Sensitive Is The Global Economy?

(15:56) The Financial Cycle

(24:12) The Two Inflationary Regimes

(36:45) Central Bank Balance Sheet Policy (Quantitative Easing & Quantitative Tightening)

(39:34) Liquidity In Sovereign Bond Markets

(46:13) Non-Bank Financial Sector Is "Rife With Hidden Leverage & Maturity Mismatches"

(50:56) Interest Rate Risk Within Banking System

(56:45) Concluding Thoughts On Debt & Inflation

Disclaimer: Nothing discussed on Forward Guidance or On The Margin should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.

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Supply Shock

Dr. Claudio Borio & Joseph Wang on Fiscal Dominance, Financial Instability & the Boundaries Of Debt-Fueled Economic Growth

Episode guests

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

The Tight Link between Monetary and Fiscal Policy

Globalization and Central Banking Dependence

The Impact of Monetary Policy Independence on Fiscal Stimulus

The Relationship Between Monetary Aggregates and Inflation

The Financial Cycle and Regulation of the Non-Bank Financial Sector

Remember Everything You Learn from Podcasts