G30 Publishes Debt, Money, and Mephistopheles: How Do We Get Out of This Mess, by Adair Turner

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The publication, adapted from Adair Turner's speech at the Cass Business School in February 2013, looks at the financial crisis, the post crisis recession, and policy options available to central banks and governments.

Adair Turner, Senior Fellow at the Institute for New Economic Thinking

Fiscal policy, in its conventional funded form, may be constrained by debt sustainability concerns. We therefore need to think outside the box...

The Group of Thirty today released Debt, Money, and Mephistopheles: How Do We Get Out of This Mess, by Adair Turner, Senior Fellow at the Institute for New Economic Thinking and former Chairman of the Financial Services Authority in the UK. The paper is adapted from the widely publicized speech given by Lord Turner at the Cass Business School in February 2013.

Looking at both the causes of the financial crisis and the drivers of post crisis recession, the author argues that central banks and governments need to consider radical policy options.

"The financial crisis resulted from a buildup of excessive debt. In its aftermath, deleveraging is depressing nominal demand. In that environment, radical policy tools may be needed to avoid sustained deflation and many years of below potential growth," argued Turner.

He continued: "Faced with private sector deleveraging, low interest rates may be ineffective in stimulating demand, and unconventional monetary policy may create risks of future financial instability. Fiscal policy, in its conventional funded form, may be constrained by debt sustainability concerns. We therefore need to think outside the box, considering even previously taboo options, such as overt money finance of increased fiscal deficits. Within the disciplines of clearly defined targets and central-bank independent decision-making, overt money finance has potential to be an important additional policy option."

The paper is part of the Group’s ongoing Occasional Paper Series. The Group of Thirty has published more than eighty Occasional Papers on issues pertinent to international economics and finance.

PDFs of this paper are online at http://www.group30.org/publications.shtml, or via email at info(at)group30(dot)org. Hard copies are available for purchase.

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Stuart Mackintosh
Group of Thirty
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