D.he national debt in the industrialized nations last year averaged around 115 percent of economic output. Given the pandemic, this value will increase significantly; Experts expect national debt to rise to 140 to 150 percent of economic output in the coming year, depending on the further financial policy challenges posed by the virus, which cannot yet be precisely calculated. A country like Japan will be noticeably above the average, Germany below it.
The use of expansionary financial policy in a severe crisis is not controversial, but its effectiveness diminishes with the longevity and intensity of its use. Many countries can only pursue expansionary fiscal policies because interest rates are low and the central banks are generously buying bonds. The separation between monetary and financial policy, which has always been a lot more artificial for the American mainstream economists, which dominates the industry, does not seem to be able to survive the current crisis de facto, while central banks and governments work more closely together was also seen in severe crises earlier, it is to be feared that this time the central banks will no longer be able to easily free themselves from the grip of governments and financial markets.
Inflationary pressures could rise
In the long run this is a very bad development. Because not only does a permanently very expansive financial policy favor a waste of scarce resources; it also hinders the central banks in securing stable money if inflation risks should emerge again. At present this is not the case, and no one is more damaging to a serious treatment of the subject than crisis economists who fantasize about money crises and other barkers.
A high degree of elasticity in the global supply of goods combined with a lack of wage pressure and low inflation expectations has kept inflation in check. Trade barriers and demographic change, including in emerging countries, could result in somewhat higher inflationary pressure again in the future.