Central Bank Culprits?

Money is important for our economies as oil is for an engine. Too little of it has devastating effects. A bit extra (say 2%) makes it possible for the engine to run smoothly, but not too much.

The general view is that Central Banks create and control the amount of money in our economies to enable a smooth journey. However, the ballooning balance sheets of banks and credit institutions signal that there is a problem: not Central Banks but the financial sector orchestrates our economies by determining the level of credit.

The risk of credit is counterparty default. To increase profits generated by interest margins of the credit business, banks create a maturity mismatch that adds two serious risks: interest rate risk and liquidity risk. The reward of risk is profit, the penalty is loss. Bank shareholders, directors and employees have pocketed the profits of ballooning credit in the past, the economy is now paying for the losses. Wow! Who does not want to be a banker?

The 2008 banking crisis proves that the liberalized financial sector has harmed our economies by too much credit and risk. Central Banks have to get more control of the money supply to prevent a future breakdown of our economy.

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