The main thesis of this chapter is that in fighting a crisis, policymakers often sow the seeds for the next crisis. There are three sections in this chapter. Section 1 argues that COVID-19 made its appearance on an unstable financial stage and exposed the fractures and flaws of the present financial system, which we term as financialized capitalism. We briefly show how this system evolved historically, the defining features of financialized capitalism, and how it led to the 2008 Global Financial Crisis (GFC). Section 2 examines the monetary policies adopted to contain the GFC and their impact on the economy, society and politics. Section 3 looks at the monetary policies used to tackle the economic crisis arising from the COVID-19 pandemic, their impacts and how they are laying the foundation for the next financial crisis.

Section 1: Finance—An Unstable Stage

Many writers of different political persuasions (from right, to moderate, to left) commenting on the COVID-19 pandemic, agree that this crisis has exposed fundamental flaws and fractures in our society (see Financial Times 2020a; Friedman and Hatheway 2020; Varoufakis 2020). These include problems in the financial, economic, social and political systems. What are some of these fractures? The economy is weak and unemployment high, the financial system is fragile and volatile, political division is deep and widespread, social and economic inequality is at threatening levels, the environment is degraded and climate change looms ominously, spurring forest fires, rising sea levels, super hurricanes and floods.

To understand the problems we face today, we need to step back and look at history. Chapter 1 discusses some of these problems and places them in the historical context of the rise of the self-regulating market in a capitalist economy. In this chapter, the focus is on the place and the role of finance in the evolution of capitalism, and the role and impact of finance on society.

Stages of Capitalist Development

Finance has historically played an important role in the economy. Banks and moneylenders financed trade in the medieval era. Later they financed large-scale industrial development in Europe, the United States and Japan. Big finance also bank-rolled governments and the wars they waged.

The relationship between finance and economy occupies centre stage in Minsky’s analysis of capitalist development (Whalen 1999).