Davies: Clear Balance Sheets or Risk the Consequences

The video discusses the challenges of perverse incentives in society, particularly how they affect central bank control and economic stability. It highlights the issues with targeting low inflation rates, leading to negative interest rates and economic inertia. The lack of deleveraging post-crisis is examined, emphasizing the need to clear debt to avoid prolonged low interest rates. The limitations of central banks in managing economic downturns are discussed, along with potential solutions like mergers and fiscal policy changes, including possible tax increases.

What is one of the main issues with holding excess cash in society?

• It leads to increased inflation.

• It encourages more spending.

• It results in higher interest rates.

• It causes a lack of control for central banks.

Why is the duration of negative interest rates a concern?

• It leads to increased inflation.

• It causes a lack of confidence in the economy.

• It results in higher interest rates.

• It encourages more spending.

What is a consequence of not clearing balance sheets?

• Increased inflation rates.

• Prolonged low or negative interest rates.

• Improved economic growth.

• Higher government spending.

What is one proposed solution to address high public expenditure?

• Increasing public spending.

• Raising taxes.

• Decreasing taxes.

• Reducing interest rates.

How might Europe address its economic challenges according to the discussion?

• By following the Anglo-Saxon model of mergers and acquisitions.

• By adopting more austerity measures.

• By reducing taxes.

• By increasing public expenditure.