Coronavirus, what lessons have we learned? The central bankers were to rescue financial markets from melting down

But governments’ and central banks’ success in holding the world’s financial system together is contributing in the long run to inequality and social polarization. 

It was tempting to imagine that some common threat — perhaps an alien invasion — might make a reality of the United Nations. The coronavirus, one might think, was precisely such an invasion. And yet faced with this common threat, cooperation failed.

The development of Covid vaccines was a collective triumph of researchers, governments and businesses around the world. Mr. Trump’s Operation Warp Speed was the most successful of all. 

Budget constraints don’t seem to exist; money is a mere technicality. The hard limits of financial sustainability, policed, we used to think, by ferocious bond markets, were blurred by the 2008 financial crisis. In 2020, they were erased.

The world discovered that John Maynard Keynes was right when he declared during World War II that “anything we can actually do, we can afford.”

The central bankers were not buying government debt to help finance lockdown life-support checks. They were acting to rescue financial markets from melting down. “Too big to fail” has become a systemic imperative.

When liquidity is flushed indiscriminately into the financial system, it inflates bubbles, generating new risks and outsize gains for those with substantial portfolios.

Adam Tooze New York Times 1 September 2021

Mr. Tooze is an economic historian and the author of the forthcoming “Shutdown: How Covid Shook the World’s Economy,” from which this essay is adapted.

https://www.nytimes.com/2021/09/01/opinion/covid-pandemic-global-economy-politics.html

Professor Tooze, author of Crashed: How a Decade of Financial Crises Changed the World

https://englundmacro.blogspot.com/2020/04/professor-tooze-bailout-fund-is.html