Now Boris Johnston has said he is not standing for British PM, the path may be open to Rishi Sunak, to bring some sense to British Politics. But this does not necessarily solve the broader financial pressures we are seeing, for example in the Bond Market, in the UK and elsewhere.
Indeed, the Bank of England has said they will start selling short term government gilts as part of its QT programme, having recently bought bonds further out down the yield curve. This reminded me of the famous Operation Twist, a name given to a type of monetary policy operation performed by Central Banks which involves buying and selling government bonds in an effort to provide monetary easing for the economy, although it’s not quite as aggressive as quantitative easing. The term “Operation Twist” was first used in 1961–in a reference to a Chubby Checker song and the dance craze it engendered–when the Fed employed a similar policy.
Now of course Central Banks are trying to move to QT rather than QE, as well as higher interest rates to tame inflation.
But could we see this Twist type of operation again, as the battle to fight inflation, now stubbornly intrenched is driving rates higher, risking higher unemployment and even a recession. Could we see a whole new front open up in Economic Policy, using Twist type operations again?
It is conceivable this could create capacity for Governments to spend more (again). But wait, there is more.
If you then added in a Central Bank Digital Current, the central planners could then direct spending – and interest rates more specifically at certain sectors of the economy. For example, they might offer “cheap” money for small business investment, but “expensive” money for vehicle purchases as a potential mechanism to bring supply and demand back into balance, and so help address the inflation problem. This might mean rates would not need to go so high. It also expands the role of the Central Bank, to the point where it merges back in the Government Treasury operations.
So, I would not be at all surprised to see these old twist techniques becoming new again as Central Planners around the world try to put years of poor policy back in the bottle – by trying to control yet more elements of the economy – which is a ways away from Free Market Capitalism – but a Central Planners dream.
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