I'd agree totally. It should always come down to the question of what is judged to be the best (or sometimes least-bad) mechanism. And you and I seem to be in agreement that in a deep financial crisis, stimulation through adjusting the control of the money supply is the best (or maybe least-bad) mechanism.
It does not look like we agree at all. Monetary policy is the best tool for a normal run of the mill recession, but it looses nearly all of it’s effectiveness in a very deep downturn. In a deflationary economy there is an incentive to simply sit on money, neither investing nor spending it. When prices are dropping the real value of money increases when it’s just sitting idle while business decline in vale because the value of their products is dropping.
What you need in this case is to stimulate aggregate demand. The most straightforward way is to increase government spending. You can also try to increase consumer spending by encouraging people to borrow, but once real interest rates are at zero this gets difficult as well. Either way you will be increasing total government + consumer debt. If you successfully reduce government debt though an austerity program it means you need that much more debt on the consumer side of things, which has the potential to go south real fast when interest rates go back up.
The other alternative that gets thrown around on the monetarist side is “helicopter money” in which the central bank prints money and just gives it away fro free to consumers who then, hopefully, spend it. I do not see how this could be a better option than lending that money to the government who then spends it on infrastructure and social programs. This way the money is definitely spent, or goes to the people most likely to spend it immediately.
In normal economic ups and downs you want gove3rnemnt tom focus on long term structural deficits, not the deficit/surplus at the time. In the deepest downturns, however, fiscal stimulus still has a very important role to play and austerity can potentially turn a manageable situation into an economic catastrophe.
Well actually, Moody's (the preeminent credit ratings agency for sovereign debt instruments) put the UK on notice in 2011, and downgraded the UK in 2013 (with another warning of potential further downgrades if GDP forecasts and government defecits continued moving in the wrong direction). There actually was a further downgrade in either 2016 or 2017.
Those ratings mean almost nothing for significant economies who control their own currency. The BoE could literally create money from nothing to pay off any and all government debts.
The risk you incur by lending to the UK is purely in the form of inflation and currency devaluation. But consider the context. In conditions like those that followed the 2009/09 recession the economic risk was
deflation and slow economic growth. The former is the polar opposite of inflation risk while the latter would if it occurred create strong export growth.
There actually was a further downgrade in either 2016 or 2017.
Following the Brexit vote…
Brexit, and especially a no deal Brexit, sets the UK up for a major economic downturn. This will force the BoE to print money and with inflation already very low there is once again a risk of deflation. If the UK government once again responds with austerity, the UK once again risks that deep recession becoming a deflationary spiral and full on depression which could take decades to recover from.
