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Ask HN: Why can't central banks print money as exception?

6 points by zxienin ↗ HN
Serious economic fallout of coronavirus is becoming clear [1].

Rewind back 3-4 weeks, many governments were hesitant to institute lockdowns, out of concern of economic impact. Some still are.

Why can't central banks print money as exception? Calm economic concerns down, and let everyone focus decisively on dealing with virus.

While I am not an economic and behavioural expert, I am aware of counter arguments to printing money.

Yet, these are unprecedented times. The leeway is going to be time limited (say, 6 months). Assumption: any downside of limited printing money is far less damaging than global economic engine going in recession. Not to mention, putting everyone's mind at ease, can shape behaviour that can save lives.

Pay small businesses, companies that are hit hard with no WFH options and can't employ. Pay premium to folks on the front lines, critical services.

Can ones more educated on economics and behavioral psychology post their answers?

[1] https://www.bbc.com/news/business-51706225

20 comments

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gshdg
Because that’s how you get runaway inflation. Printing money doesn’t add value to the economy. It spreads the existing value over more currency.

Countries that made this mistake during the Great Depression include Weimar Germany.

zxienin
> Because that’s how you get runaway inflation

That's the common view yes. For 6 months? In current context, value is psychological shoring.

> Countries that made this mistake during the Great Depression include Weimar Germany.

How long was printing money period? 1-2 years?

mtmail
Yes, about 2 year https://en.wikipedia.org/wiki/Hyperinflation#Germany_(Weimar...
zxienin
I don't find this Weimar war time hyperinflation comparable to current state.

In opening text, there is the context of keeping this time bound.

Plus globally, there is still economic activity (ones with non human contact). Even they risk getting hit by cascaded effect, not for lack of demand, but lack of liquidity in system. This is avoidable.

michaelyoshika
For the US itself, the inflation won't be much due to the fact US dollar is a world currency and other economies will consume most part of the inflation.

You'll see people's lives in other parts of the world suffer more.

op03
They will don't worry about it.

They know whats happening well before people start noticing issues. And you can bet they have been worrying about the need for bailouts/payouts/credit lines for a while now.

If I am running a business my bank knows quite well what enters and exits my account from clients/investors, to suppliers, employees, rent payments etc. For most businesses this stuff is not drastically changing from month to month. Its more or less follows predictable patterns. So when there are sudden disruptions in those flows and major drops in transactions across the board, like an ant hill that has been stepped on there is a hell of a lot of excitement and reactions.

But just like the ant hill processes will kick in automatically to restore normal ops. Businesses will be telling banks what they need short term/long term. Banks will be telling each other and central banks what their needs are.

Things will be tallied up, including payoffs to whatever section of the population that is biologically hard coded to take advantage of crisis. This is how random numbers suddenly start circulating in congress and parliaments of the world within a few days of the crisis starting.

And then god emperors, prime minsters, presidents, and grandmothers of the world will show up and say dont worry we will cover all - now get back to work.

And like the ants we shall.

rmrfstar
This is a very deep and important question.

Here's a predictive model for central banks. Their unstated objective is ensuring that control over resources does not change hands during a crisis. In practice that means that the relative value of financial assets is roughly preserved. Check out [1] pdf page 4.

[1] https://www.db.com/newsroom_news/GDPBD00000292870.pdf

zxienin
My first thoughts: Option 4 is preferred. (I will add businesses to it as well, as option 1-3 don't appear to do so direct enough).

Avoids the chances of these getting pocketed by high flyers.

just in case it's not obvious, [1] pdf remind readers, to distinguish between government treasury and central banks.

zxienin
how does option 1-3, eventually help households, large and small businesses anyways?
rmrfstar
An economist might make the following argument. Financial systems are like banking systems. Banking systems have two equillibria: run / no run [1]. A bank run can destroy an otherwise healthy bank, and can be a self-fulfilling prophecy. The way we stopped bank runs in the US in the 1930s is deposit insurance and the Fed discount window. 1-3 are modern extensions of those policies. They help households in the sense that they prevent full-scale depressions.

This argument is actually true imo, but it ignores the fact that the public could recapitalize the financial system (equity investment) and share in the upside. When you lend to a company near insolvency, the downside risk is identical to the downside risk of an equity investment. So, it is strange that the government favors debt rather than equity. The mental model of "no change of control" predicts this policy choice and others.

The proceeds of a public equity investment can be distributed pro-rata through e.g. investments in public health infrastructure or basic scientific research. Norway's sovereign wealth fund is a good example [2]. This very much resembles 4, although it is not a direct cash payment to households.

[1] https://en.wikipedia.org/wiki/Diamond%E2%80%93Dybvig_model [2] https://www.cnbc.com/2020/02/27/norway-wealth-fund-earned-a-...

michaelyoshika
I'm betting on them doing this already. However, what will happen is that most of these printed money will go to billionaires CEOs. Even worse, we can't change this because this is how our (US) system works and it's been proven in the past century that it works better than other systems.
smarri
I'm no expert. But I'm concerned about quantitative easing. Introduction of massive amounts of money erodes the value of peoples savings. Propping up some businesses might not be a good idea, some business should fail if they are no longer relevant or have not been managed well e.g. a business couldn't predict coronavirus necessarily, but they could absolutely predict an unforeseen event that impacts their cashflow for a quarter or more. Also, if we haven't seen the worst that's to come with the coronavirus, what's the plan? Throw even more money at the problem? While we are at it, why don't we just print money forever and pay everyone's salary - where do we draw the line?
mattmanser
There's so many businesses that legitimately operate on tight margins, it's kinda the point of capitalism. While this will hit some legitimately badly run businesses, it will also hit lots of well run businesses that simply can't reduce their overheads that quickly.

The businesses that fail might have a totally legitimate business model, as long as you didn't expect all your customers to abruptly disappear for a month or even months.

smarri
"There's so many businesses that legitimately operate on tight margins, it's kinda the point of capitalism" I dont think that's true. Also, the business model isn't legitimate if it needs a bail out.
mattm
It is true. If you do have a high-margin business, eventually other people will notice and start to compete which will bring the margins down.
smarri
Thanks, yes I agree with your point on competition eroding margins. But I think it is nuanced, not all successful business have slim margins, many are awash with cash, Apple for example.
mattmanser
A luxury product with high margins that is entirely reliant on branding, and on top of that has a long shelf-life and retailers buy in bulk.

Great example! /s

smarri
As are Berkshire Hathaway, Ford, Cisco, Amazon, Alphabet, Microsoft. But that's not the point, the point I'm making is a solvent business should have cash reserves.
zxienin
It's ok if implementation of such money printing exercise is more surgical than broad based. But I don't think this is the time to bring undue complexity of debating which business model deserves to be propped. This will misdirect lot of debate/energy.

My view is that tail end concerns here are largely theoretical. we fall in the trap of such argumentation, when reality needs immediate response.

> if we haven't seen the worst that's to come with the coronavirus

If humanity can't come up with working measure/vaccine in next 1-1.5 yr time frame, global economy is the least of concern.

> Throw even more money at the problem? While we are at it, why don't we just print money forever and pay everyone's salary - where do we draw the line?

This is an unwarranted extrapolation of opening premise. Who argued forever?

smarri
Thanks, this is worth debating. Is this QE surgical rather than broad based, I can't see how it's precise and not broad? We can avoid the debate of which businesses need propped up by not propping any up. Yes an immediate response is required, but some consideration should be given to down-stream impacts. Agreed on the vaccine, but the worst to come could happen in the next 1.5 years, and if we've deployed trillions into the economy already, what's our next move? The extrapolation is my argument, if central banks can print money and pay wages now, why stop?