Washington ¨C The coronavirus economy is shredding records for government borrowing and for central-bank lending. Soon it may also smash the taboo that¡¯s supposed to keep those two things apart.
Governments paying for budget spending with loans from their own central banks is known as monetary financing. It¡¯s long been seen as a slippery slope that starts with politicians riding roughshod over central-bank independence, and ends in runaway inflation as they splash what feels like free cash around the economy.
The stricture against direct financing has held up even through a series of crises when central bankers did in fact buy plenty of public debt. They just made sure to do it in a roundabout way, snapping up bonds in the secondary market.
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