Over the last decade, developed market economies have stepped into historically unchartered territory with central banks lowering interest rates close to zero, and in some cases even negative (1). In addition, central banks have recently also bought assets greater in maturity (duration) and credit risk than is historically normal by purchasing asset-backed securities, corporate bonds and in some cases equities (2). By purchasing such risky assets during market downturns and keeping interest rates artificially low, central banks have conditioned investors to pay less attention to downside risk and take on more risk in order to generate returns (3). Moreover, the continued suppression of interest rates encourages the accumulation of debt by the public and private sectors, which burdens future generations. In addition, the easy monetary policy of central banks has contributed to the inflation of almost all asset prices, including bonds, equities and real estate (4). A consequence of this is increased social inequality, as it is generally the wealthy that own such assets (5). Asset price inflation has contributed to increased inequality across two dimensions: first, across social classes and second, across generations (6) (7). At the same time, by suppressing interest rates, central banks have sought to create greater economic consumption of the earth’s finite resources, particularly in carbon-intensive industries, at a time when climate change is a key policy consideration (8). It would therefore make sense to review whether the tremendous power granted to unelected members of central banking committees is in the best interests of society.
It’s Time to Review Our Central Banks
It’s Time to Review Our Central Banks
It’s Time to Review Our Central Banks
Over the last decade, developed market economies have stepped into historically unchartered territory with central banks lowering interest rates close to zero, and in some cases even negative (1). In addition, central banks have recently also bought assets greater in maturity (duration) and credit risk than is historically normal by purchasing asset-backed securities, corporate bonds and in some cases equities (2). By purchasing such risky assets during market downturns and keeping interest rates artificially low, central banks have conditioned investors to pay less attention to downside risk and take on more risk in order to generate returns (3). Moreover, the continued suppression of interest rates encourages the accumulation of debt by the public and private sectors, which burdens future generations. In addition, the easy monetary policy of central banks has contributed to the inflation of almost all asset prices, including bonds, equities and real estate (4). A consequence of this is increased social inequality, as it is generally the wealthy that own such assets (5). Asset price inflation has contributed to increased inequality across two dimensions: first, across social classes and second, across generations (6) (7). At the same time, by suppressing interest rates, central banks have sought to create greater economic consumption of the earth’s finite resources, particularly in carbon-intensive industries, at a time when climate change is a key policy consideration (8). It would therefore make sense to review whether the tremendous power granted to unelected members of central banking committees is in the best interests of society.