The last defence against a sharp contraction in activity: The monetary defence

- "Globalisation and competition from emerging countries are likely to lead to a sharp contraction in activity in most OECD countries."
- "In order to withstand this development, these countries have used:
• first private-sector indebtedness, which had to be interrupted in 2007-2008, and which caused the banking crisis;
• then government indebtedness, which had to be interrupted in 2010."
- "The only remaining defence against a drop in activity is currently the monetary defence."
- "Due to the very low interest rates and the abundance of liquidity, central
banks are enabling:
• the private sector to deleverage more easily;
• banks to finance the low-quality assets and loans they still have in their balance sheets;
• some over-indebted countries to obtain refinancing."
- "The "monetary defence" is thus preventing a surge in household and corporate bankruptcies, a fresh banking crisis and certain countries from defaulting. Removing the monetary defence would lead to a new and drastic crisis and a collapse in activity."
Natixis Flash Economics 356 20100712