Escaping the summer heat of Portugal, I visit a favourite haunt, an Anglo-Saxon church in the New Forest of southern England. Atop a hill, it looks out over green fields and woods of oak and beech. Headstones from across the centuries are scattered across the well-tended and peaceful graveyard, where a gentle breeze almost always blows.
My father was a navigator in Royal Canadian Air Force Lancasters during the Second World War, so I find it particularly poignant that three Canadian crews are buried here, far from the prairies and mountains where these young men grew up.
Eight of the aviators perished one November night when their Liberator crashed shortly after taking flight. Astonishingly, contemporary reports blamed enemy agents for sabotaging the heavy bomber. But delving deeper, a more disturbing truth emerges. Early versions of the B-24 had a design fault, later rectified, that led many to plummet out of the sky.
Officials in Whitehall invented stories of fifth columnists to limit the damage to aircrew morale. Doubtless London believed the sacrifice was a necessary evil at a time when the world was imperilled by a terrible tyranny. Who are we, decades later and untroubled by the need to make life and death decisions, to judge?
Central bankers around the globe have also been acting for what they believe is the greater good over the past 10 years or more. In the wake of the 2007-08 global financial crisis, they resorted to the experiment of Quantitative Easing (QE), effectively printing massive amounts of money to buy up government and other debt.
QE increases the amount of money in circulation in the economy, stimulates investment and lending, and helps contain interest rates at very low levels, allowing governments to continue to borrow and spend.
Most economists agree that QE was very successful in arresting the wrenching financial crisis in 2009. But the subsequent rounds have been far less effective.
Moreover, QE has widened inequalities since it has increased the price of financial assets such as equities and housing, boosting the wealth of the already rich.
Indeed, the increasing division between the haves and have nots has so far arguably led to the election of President Trump and the vote for Brexit.
There are also doubts about the ultimate economic cost of QE. Raghuram Rajan is a former governor of the Reserve Bank of India. Tipped to be the next governor of the Bank of England, he predicted the global financial crisis, warning of the potential for a ‘catastrophic meltdown’ in 2005.
So, when he speaks, it is worth listening and he recently said that “for reasons we don’t fully understand, the underpinnings of growth have been very weak for almost two decades. And the way we’ve remedied that is by easier and easier money and a pile-up of debt”.
Where will it all end?
Rajan warned that, at some point, there will be a price to be paid for the years of easy money and more debt. He didn’t specify what that price will be, presumably because he doesn’t know. And that is what is so troubling about QE. Nobody, not even eminent central bankers, knows how and where it will end.
Yet despite this uncertainty, some economists are calling for QE to be expanded and for the adoption of even more radical measures, such as the use of “helicopter money” as the global economy slows once more.
Rather than using a helicopter to fly over and drop money on people’s houses, central banks would print money and deposit it in citizens’ bank accounts, so encouraging people to spend and boost economic activity.
Proponents of the policy argue the Australian government did just that during the global financial crisis and the country avoided recession.
However, Japan might prove a better guide to the dangers of pursuing unconventional monetary policies for prolonged periods. Japan adopted QE and vast spending programmes in a bid to jumpstart the economy after its post-war economic miracle came to an end in the late 1980s. None of it seems to have worked. The country now has a vast pile of debt, yet the economy still appears moribund.
There is an even more alarming precedent if one goes further back in history. And, as Churchill said, “the longer you can look back, the farther you can look forward”.
The Weimar Republic came into existence in Germany just over 100 years ago following the Kaiser’s abdication at the end of the First World War. Beset by economic difficulties, it resorted to printing money. Hyperinflation soon followed with the cost of a loaf of bread, priced at 250 marks in January 1923, rising to 200,000 million marks by November 1923.
The hardships created by hyperinflation radicalised German politics, paving the way for Hitler’s ascent to power.
When central banks embarked on the QE experiment in 2009, many economists warned that prices could take off. There is no sign of that today, but could a sharp rise in inflation be the price that Rajan warns will eventually have to be paid?
By resorting to QE, policymakers tried to learn from the mistakes of their predecessors in the 1920s and 1930s who initially focused on limiting government spending and borrowing, so exacerbating the downturn.
You can be sure central bankers are wary of repeating the errors that led to the downfall of the Weimar Republic, the installation of the Nazis and ultimately to the death of tens of millions, including those Canadian airmen. But if the global economic slowdown accelerates, they may have no choice but to throw the dice yet again.
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Anthony Beachey is a former BBC World Service journalist now working on a freelance basis in Portugal, where he specialises in economics and finance.
