We went into the pandemic with strong balance sheets and high levels of capital in the Australian banking system. This means that our financial institutions are well placed to provide the credit that the economy will need.
One monetary policy option that has been the subject of public discussion over recent months is the possibility of the RBA creating money to directly finance government spending. For some, this offers the possibility of a ‘free lunch’. The reality, though, is that there is no free lunch. There is no magic pudding.