- For instance, the dollar devaluation during the Great Depression (paired with a law invalidating gold-linked debt) effectively produced a big debt write-off.
- In certain cases, governments directly created or negotiated debt write-downs (e.g., Ancient Rome, Great Depression, Iceland recently).
- MP3 policies could work through banks, providing them very strong incentives to lend. For instance, in addition to negative rates on excess reserves, the central bank could offer highly positive rates on required reserves—making it materially more profitable for banks to lend (versus building up excess reserves as central banks print money). Flavors of this program have recently been attempted in Europe, Japan, and the UK.
- A different way of accomplishing this is incentivizing households to borrow through subsidized loans or guarantees. One example is the UK’s “Help to Buy” program, providing a five-year, interest-free loan for up to 20% of the property value to some home buyers.
Roosevelt’s fiscal spending programs were financed by a combination of spending cuts (Roosevelt cut back on the military early in his presidency) and deficit spending. This deficit spending wasn’t primarily financed by direct QE. The persistent gold inflows that followed the US’s devaluation increased the money supply: the banks, unwilling to increase lending to the private sector, significantly increased holdings of government debt to make a nearly guaranteed spread while funding government spending.
During World War II, government spending massively increased, and the money supply more than doubled. The Federal Reserve monetized government spending by maintaining a cap on long-term Treasury bond rates of 2.5% and short-term rates of 0.375%, and by stepping in to buy bonds when rates approached those levels.
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