Our guest for this month's Hale Report is the eminent economist Paul Sheard, Research Fellow at the Harvard Kennedy School’s Mossavar-Rahmani Center for Business & Government. A lifelong Japan watcher, Dr Sheard is also a central bank policy expert. He describes the Bank of Japan as a 'Monetary Garden of Eden" where the new age of unconventional economic policymaking began. You will find a link to the podcast below, a 59-minute master class in international monetary policy.
Dr Sheard explains how innovations conceived decades ago at the Bank of Japan such as quantitative easing have been used to combat recent financial crises, blurring the lines between traditional roles of central banks and finance ministries in the process. He recommends structural changes at the Federal Reserve that could seemingly threaten its independence. Dr Sheard believes however that in practice a merger of fiscal and monetary policy has already begun, accelerated by the unprecedented response to the economic shock of the pandemic. Building on this concept, he explains why burgeoning central bank balance sheets and growing debt levels might not be a problem, and why the idea of cancellation of sovereign debt is actually meaningless in this environment.
'The fact is we should really think of QE as a debt refinancing operation of the consolidated government, just changing the debt profile. When you think of it that way, it's much less scary, but also much less likely to be stimulatory.'
Dr Sheard weighs in on fintech and innovations that began not on Wall Street or in Washington, but in Silicon Valley. He imagines decentralized finance as the new "fourth leg" of the global financial system, providing some of the disruptive energy necessary to re-plumb the financial ecosystem to meet the realities of the global economy of today. Finally, he shares his observations on how his native Australia is weathering the effects of COVID.
Click here to listen to the podcast on Patreon, or here for the transcript.
Dr Sheard was Vice Chairman of S&P Global, after serving as Executive Vice President and Chief Economist. He was Chief Economist at Standard & Poor’s Rating Services, at Nomura Securities and at Lehman Brothers, where he was earlier Chief Economist Asia based in Tokyo. Sheard is a member of the World Economic Forum’s Global Future Council on the New Agenda for Fiscal and Monetary Policy.