The stakes are indeed very high. The U.S. either “acts big” on fiscal easing or gives up the fight against muted recovery and undershot inflation targets for the Fed. The latter might weaken the financial sources of economic warfare against China. All in all, the second option is not really viable for the U.S.
Nevertheless, it comes with a price-tag. A kind of Japanification might come and it will take decades working off debt built-up during financial warfare /Ian Harnett, Markets Insight 19 February, 2021/.
Both the IMF and Ian Harnett are right. Politicians and central bankers have no alternative but to do what it takes to create a “bridge to recovery”. It is also true this can create conditions for medium-term financial instability.
There might be a way-out of this American and global trap. On one hand, we should fight against the present and future pandemics by “acting big”. On the other hand, why don’t we stop the new cold war, by “acting smart” and building a new G2 partnership between the two largest economies.
By acting both, big and smart we might be able to cut short the path of history. We can save a couple of decades for our children and grandchildren.
Governor Matolcsy, MNB, the Central Bank of Hungary