A crucial point for the future: OECD countries’ economic policy has only been feasible because economic agents have been willing to hold more money

OECD countries have implemented a fairly straightforward economic policy in the recent period: governments run the fiscal deficits they believe are necessary, central banks monetise these fiscal deficits to prevent interest rates from rising. This inevitably leads to an increase in money holdings among banks and non-bank economic agents. This policy is therefore only possible if economic agents are willing to hold more money , which has been the case because: All OECD countries have conducted the same policy, so no country has suffered “flight from money” or the mass conversion of money holdings into foreign currencies; Long-term interest rates have fallen to a level where it is no longer detrimental to hold money instead of bonds; Asset prices (equities, real estate) have risen and therefore so has the value of these assets, which has curbed the increase in the weight of money in total wealth. This implies that: Countries that maintain a highly expansionary monetary policy as other countries exit theirs may run into trouble; Long-term interest rates cannot rise much, otherwise demand for money will become insufficient relative to the money supply; Share prices and real estate prices cannot fall much, otherwise the weight of money in wealth will become excessive.