Part 6/16:
Since 2008, and increasingly after 2017, central banks have shifted from countercyclical tools—stimulating during downturns and tightening during booms—to a more procyclical approach, consistently injecting liquidity regardless of economic conditions.
This shift results in:
Increased volatility when markets eventually realize that artificial stability is unsustainable.
Elevated macroeconomic risks due to massively inflated asset prices.
Greater challenges for central banks trying to manage these cycles, especially as fiscal policy (like large deficits) has become a permanent feature rather than a temporary tool.
Fiscal deficits are no longer primarily used to stabilize when the economy is weak but are now a regular fixture, further fueling economic volatility.