Convergence to Central Bank Unconventional Policies in Core Capitalist Countries after the 2007 Crisis

Central banks in core capitalist countries have acquired unprecedented economic significance and monetary policy powers following the 2007 crisis. Their traditional lender-of-last-resort role after the collapse of Lehman Brothers in 2008 was not temporary, but instead has turned into an almost long-term blank check underwriting the post-crisis recovery in the USA, the Eurozone, and the UK. In 2012, the Bank of Japan joined to its counterparts in the USA and Europe in monetary policy extremism when the newly elected prime minister, Shinzō Abe, announced his radical economic recovery package, now popularly known as Abenomics, to inflate the Japanese economy—through massive quantitative easing programs by the central bank—out of its deflationary state. Consequently, since the 2007 financial crisis, all central banks in major advanced economies have converged into a policy consensus that has turned them into public institutions holding significant amounts of sovereign risk on their balance sheets through large-scale asset purchase programmes in both liberal market economies (LMEs) and coordinated market economies (CMEs). Both types of capitalism that were distinguished in the varieties of capitalism literature (Hall and Soskice 2001) by their institutional characteristics in growth dynamics are unable to generate desired economic growth, and have been constrained in fiscal policy choices due to high budget deficits since 2007. The BIS economist Claudio Borio (2011) sees this policy experimentation in all high-income countries as central banks trying to navigate in “uncharted waters” with theoretically suspect macroeconomic models. Such central bank activism is well beyond the imaginations of the free-marketer Alan Greenspan, who introduced the term “mopping up” in the context of recurring asset bubbles since the early 1990s, or the Keynesian Hyman Minsky, who assigned to central banks the role of restoring stability in capitalism after inevitable endogenous cycles of Ponzi schemes (Greenspan 1999; Minsky 1986). According to Steve Keen, “Bernanke's dilemma is that he is living in a Minskian world while perceiving it through Friedmanite eyes” (Keen 2009, 8).