Today’s monetary policy merely changes the nature of the financial asset in which excess private sector savings are held: Has central banks’ intervention been excessive?

In 2020, t he COVID crisis has given rise to huge excess private sector savings over investment (we look at the cases of the United States and the euro zone) : Investment has fallen; Private sector incomes have been maintained thanks to the highly expansionary fiscal policy, but private sector spending has fallen (due to the lockdowns , public health restrictions and precautionary savings). Without central bank intervention, these excess private sector savings would have been held in the form of public sector bonds, driving up long-term interest rates (the weight of these bonds in wealth would have risen), but perhaps not by much as households and companies would have had to invest their excess savings. With central bank intervention, these excess private sector savings have to be held in the form of money, leading to very low long-term interest rates, as the central bank intervention has given rise to an undersupply of government bonds relative to demand. The central banks’ intervention may have been excessive: the excess private sector savings are financing fiscal deficits even in bonds; there is an artificial scarcity of government bonds.