Dr. Claudio Borio & Joseph Wang on Fiscal Dominance, Financial Instability, and the Boundaries Of Debt-Fueled Economic Growth

Today’s interview is a very special one. Dr. Claudio Borio, renowned economist and Head of the Monetary and Economic Department at the Bank For International Settlements (BIS), joins Joseph Wang of Fedguy.com and Jack Farley for a wide-ranging discussion on the nature of financial instability and the interplay of monetary policy and fiscal policy. Borio shares insight from recent BIS research on inflationary regimes, financial cycles, and the boundaries of debt-fueled growth. Borio notes that the materialization of interest rate risk has so far been seen in the banking sector, but that we have yet to credit risk. Filmed on October 17, 2023.

Some of Borio’s and the BIS’ works mentioned in this interview:

“Monetary and fiscal policy: safeguarding stability and trust,” June 2023 Presentation in Basel, Switzerland, Claudio Borio

https://www.bis.org/speeches/sp230625a_slides.pdf

“The two-regime view of inflation,” March 2023, Claudio Borio, Marco Lombardi, James Yetman and Egon Zakrajšek

https://www.bis.org/publ/bppdf/bispap133.pdf

“International banking and financial market developments” BIS Quarterly Review, September 2023

https://www.bis.org/publ/qtrpdf/r_qt2309.pdf

“Does money growth help explain the recent inflation surge?” 26 January 2023, Claudio Borio, Boris Hofmann and Egon Zakrajšek

https://www.bis.org/publ/bisbull67.pdf

“On money, debt, trust and central banking,” January 2019, Claudio Borio

https://www.bis.org/publ/work763.pdf

“Navigating by r*: safe or hazardous?” November 2021, Claudio Borio

https://www.bis.org/publ/work982.pdf

“The financial cycle and macroeconomics: What have we learnt?” December 2012, Claudio Borio

https://www.bis.org/publ/work395.pdf

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(00:00) Introduction

(00:32) The Interplay Between Monetary Policy & Fiscal Policy

(09:50) High Levels Of Government Indebtedness As A Risk

(12:35) Just How Interest Rate Sensitive Is The Global Economy?

(15:56) The Financial Cycle

(24:12) The Two Inflationary Regimes

(36:45) Central Bank Balance Sheet Policy (Quantitative Easing & Quantitative Tightening)

(39:34) Liquidity In Sovereign Bond Markets

(46:13) Non-Bank Financial Sector Is "Rife With Hidden Leverage & Maturity Mismatches"

(50:56) Interest Rate Risk Within Banking System

(56:45) Concluding Thoughts On Debt & Inflation

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