As I have already said, we now have robust banks and, in Europe, the soon-to-be completed asset quality review, conducted under the aegis of the ECB, will help to guarantee this. However, this does not mean weaknesses have disappeared. They are still there, only in other parts of the system. At the moment, for example, credit activities are mainly concentrated in the hands of large asset managers who together manage portfolios of several tens of trillions of dollars. These managers are becoming increasingly sophisticated, and therefore more efficient, but at the same time they are getting bigger and bigger. They are judged on their short-term performances, often leading them to follow identical strategies, which in turn results in massive movements in the market. Some – though not all – transform short-term savings into structured products, a practice which, as the crisis has shown, can prove very dangerous. 4/ – Fourth paradox: our monetary policies are extremely accommodative, but inflation remains low and, in some cases, is even declining. Throughout the developed world, central  BIS central bankers’ speeches  1  banks have slashed their policy rates close to the zero lower bound. Their balance sheets have ballooned under the impact of asset purchases and liquidity injections. But in all these countries, inflation rates are at levels considered too low with respect to the price stability target – in some cases dangerously so. In the euro area, inflation has been falling steadily for six months.
This is precisely their purpose at a time when investment choices are dominated by risk-aversion. As for their effectiveness, we need only think for a minute what things would be like now if we had followed tighter monetary policies. We should be proud that, during the recent crisis, our central banks managed to avoid the errors of the Great Depression. Second assertion: only inflation can eliminate the excessive debt levels inherited from the crisis and before. This clearly ignores the fact that markets know how to protect themselves from inflation and that the long-term effects of a loss of credibility on the part of central banks would be massively negative. Of course, this does not mean that the extremely low levels of inflation we have today are acceptable. The keyword here is symmetry: central banks need to put the same effort into combating low inflation as they do into preventing high inflation. Third assertion: public debt levels are unsustainable and we thus need to start default proceedings or debt restructurings. This assessment is often based on a limited appreciation of what is sustainable, neglects the highly disruptive effects of debt restructurings on financial stability, and is frequently founded on extremely pessimistic growth forecasts. Fourth assertion, which is the opposite of the previous one: we need more debt; we need to take advantage of low interest rates to rebuild public infrastructure and thus adopt less rigorous – some would say less austere – fiscal policies.