In a report published by the British Telegraph newspaper, writer Russell Lynch said that to understand the biggest debate between central banks ever regarding their independence from political decisions, it is necessary to go back in time to the period when the Korean War began, that is, 70 years ago.

The US Federal Reserve fixed the costs of US debt at the time of 2.5% throughout World War II, by purchasing Treasury bonds that were printed. But then-Fed Chairman Thomas Maccabi - who was troubled by the prospect of a new boom in US borrowing and then the prospect of facing the risk of uncontrolled inflation - wanted to end the measure and raise interest rates.

This was how mad President Harry Truman, who accused the Fed of doing “exactly what Stalin wanted,” was so McCabee was sacked years later, and Truman then described his successor William Martin as a “traitor” because he tried to assert the independence of the Fed like McCabe, according to the writer’s expression. .

This episode of history, former Deputy Governor of the Bank of England Governor Paul Tucker's reminiscence, remembers, "The Federal Reserve has always been fixing interest rates, so Truman did not see a reason to keep doing that."

"Governments are used to sitting down knowing that the central banks will be their cavalry," he says.

Tucker expressed concern that the health crisis and its economic consequences will persist for a long time, until companies and governments are used to cutting central banks' borrowing costs, which applies to both the UK and the Federal Reserve.

The staggering support of the world's largest economy has pushed the US federal budget out (Reuters)

unknown future

In the post-Corona virus world, the central banks - especially the Federal Reserve Bank under Jerome Powell - headed deeper into the unknown, and the staggering support provided to the world's largest economy has led to an inflation of its balance sheet to about $ 7 trillion, an increase of 3 trillion Dollars in less than three months.

In fact, according to the writer, the central bank has eliminated treasury debt and corporate bonds, and has sought to issue high-risk bonds and loans to small companies, and its $ 500 billion plan specifically for lending to local governments and companies directly - under the main $ 600 billion lending program - It will come into effect by the end of the month.

The author stated that the Federal Reserve program would make the efforts of the Bank of England (£ 200bn earmarked for quantitative easing and the £ 330bn commercial paper scheme that is restricted to investment grade firms) seemingly moderate.

In Europe, after its early and hesitant response, the European Central Bank also introduced a smaller € 750 billion asset purchase program, expanding the scope of lending in exchange for additional high-risk collateral.

In the case of the Fed, he was forced to move more quickly amid bickering between the Republican and Democratic parties over support plans, but the decision to choose the local governments or companies that should receive the money is not within the jurisdiction of the central bank.

Here Paul Tucker says that the Fed did not have a clear strategy, simply tackling the problems as they emerged.

The European Central Bank introduced a smaller program for asset purchases worth 750 billion euros

Radical solutions

The writer mentioned that the main concern now for former experts and officials is how to enable central banks in the world to re-impose their independence and draw blurred lines between monetary and financial policy, and to withdraw from markets that have collapsed, without causing a disaster.

Bank of England chief economist Andy Haldane believes it is likely that the bank will maintain its substantial assets, but this measure remains temporary.

In contrast, the view of former bankers is more skeptical about the experience of quantitative easing (the purchase of financial assets by the central bank to increase the supply of money in the markets), which was adopted over a decade.

"I believe that central banks have lost their senses and should stop and be satisfied with what they have done, and fiscal policy should be the main vehicle for this crisis," says Andrew Santans, a former member of the monetary policy committee throughout the crash of 2007-2009.

But the writer pointed out that despite the huge sums used, many experts believe that the size of the inflated balance sheet is less risky than withdrawal mechanisms from unconventional market interventions caused by the Corona virus crisis. He also believes that the fear of inflation remains less than the fear of a catastrophe and recession.

The writer quotes Kate Parker, a veteran member of the Monetary Policy Committee, as saying that clear guidance to markets by linking procedures for dealing with the Corona virus with low unemployment or high growth rates is an option, but it is not a panacea.

Another fundamental solution is for the Fed to transfer newly purchased assets - such as corporate debt - to the government. In this way, politicians decide when to sell loans, and thus the central bank can get rid of fiscal policy, reduce the size of its balance sheet and leave responsibility for finding solutions to the private sector problems to elected officials.

According to the author, Paul Tucker also distinguishes between traditional treasury bonds, private sector loans, unwanted bonds (high risk) and corporate debt held by the Federal Reserve, and says that it is possible to sell unconventional assets to the government in exchange for treasury bonds, and thus the central bank avoids the possibility Selling unwanted bonds frequently, avoids the risk to companies and thousands of US jobs.