Should the central bank’s interest income fall short of its interest payment obligations, it will have to fall back on fiscal support for interest payments, reversing the dependency equation between the government and the central bank. Many believe that these tensions between fiscal and monetary policy are temporary, and will melt away once the crisis has passed. That is unlikely to be the case.
On the contrary, fiscal deficits in advanced economies are likely to persist, and in fact, increase on the way forward for at least two reasons. First, since it will take some years for households to rebuild their balance sheets which got ruptured by the crisis, economic growth will likely be weak for some years necessitating big fiscal deficits.