Fiscal Or Monetary Dominance

On today show we are looking at a tug-of-war that is underway in the financial markets. There is also a competition for capital between government and private enterprise. For the moment it appears as though government is winning that battle for dollars. We have an economy that is partially being controlled by two gigantic levers. The first lever is monetary policy and the second lever is fiscal policy.

But before we use these terms, it would be useful to define them.

Monetary policy is controlled by the central bank. Those decisions affect bank liquidity, the printing of currency units, and the setting of interest rate policy.

Fiscal policy refers to the decisions made by governments to spend money. Fiscal policy affects taxation, entitlement programs, public infrastructure projects, military spending and so on.

We literally have a situation where central banks are standing with both feet on the brakes. Governments on the other hand, have their foot firmly on the Excelerator. If you have ever tried this in your car do you realize of course that you will either burn out your engine or your brakes very quickly. governments of course.

-----------

Host: Victor Menasce

email: [email protected]