- "In the past, bad debts were destroyed via inflation: when (public or private) debt ratios were too high, the central bank would increase the money supply and this led to the appearance of inflation, resulted in negative real interest rates, and lowered debt ratios. Currently, central banks have monetised public (or private) debts, but this operation has not created any inflation because of the environment (unemployment, globalisation, distortion of
income sharing at the expense of wage earners)."
- "Monetisation has transferred (public or private) debts to the central bank’s balance sheet, and this reduces the quantity of debt private investors have to hold and, therefore, drives down risk premia, but does not destroy debts. Borrowers still have to ensure debt servicing, and this is a problem if debts are substantial since this entails allocating significant income to this purpose. To destroy bad debts, in this environment, central banks would have to destroy the ones they hold. This amounts to a default, but without any negative effect on the private holders of bad debts. It is, moreover, less serious to fleece in this manner the central bank than to fleece savers via inflation."
Natixis Flash Economics 370 20100721
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