This is a really interesting article if you are looking to understand the current financial crisis. It argues that a large part of th financial sector has been quasi nationalized by the central banks.
Because many Western countries have not taken bold political decisions, it has been left for central bankers to intervene on an unprecedented scale. The biggest examples of political indecision or stalemate have been demonstrated in the US and Germany, in my view.
Indebted sovereign countries, like the UK and France, have been wary of increasing their national debt – either because they are frightened of the credit analysts downgrading their debt or they are following an austerity policy. Meanwhile, one stage removed central banks have been increasing their balance sheets on both sides by issuing credit and buying up debt from banks and sovereigns (for example the ECB for Spain, Italy and Greece).
Sooner or later sovereigns will need to stimulate growth, preferably with carefully targetted capital expenditure projects, like China’s example in 2008. As highlighted in the Economist there are two problems a short-term one and a medium/longer-term. Reducing national debt must be deferred to the medium term but short actions are required to stimulate growth – this policy is favoured by the IMF and many leading economists. The Economist talks of self induced sluggishness in 2012 because of absence of political decisions in the US and Germany.
What do you think?
- Monetary policy: Week in review (Jan 7, 2011) (investmentpostcards.com)
- The Fed’s Balance Sheet Expansion Is… Bullish For The Dollar!? (zerohedge.com)
- A Central Bank Doing What Central Banks Do – NYTimes.com (dralfoldman.wordpress.com)
- Austerity Reigns Over Euro Zone as Crisis Deepens – Nelson Schwartz via NYTimes.com (underpaidgenius.com)
- Gavyn Davies: Fed Bazooka Aimed at the Eurozone (delong.typepad.com)
- Where will the ECB’s billions go? (blogs.reuters.com)
- Is Mario Draghi Preparing To ‘Spring A Trap’ On The Germans In Just A Couple Months? (businessinsider.com)
- Central bank gives breathing space to banks‚ realtors (thehimalayantimes.com)