By debating the size of their balance sheets, central banks are showing the first signs since the crisis that they may be worrying about our growing addiction to QE. After unclogging the system in 2009, QE has since been an imperfect remedy.
But, its impact may not have been properly picked up. By taking explicit account of QE & fiscal positions, our analysis suggests the true US policy rate may be as low as -4%, & -3% in the UK.
This may be just as well, as, without care, an unhelpful jigsaw piece from the 1930s - retaliatory trade protectionism - might yet come crashing into place. The impact of protectionism this time, though, could be far more complicated.
First, the economic & financial linkages suggest the knock-on would be more far reaching. Global retaliation would activate second-round effects that later offset the initial growth-impulse from Mr Trump’s intended tax cuts.