How central banks lost their grip

These wise men that give fools money get themselves a good report – after fourteen years’ purchase

Twelfth Night, William Shakespeare

Central banks should be the first line of defence against crisis. They are probably the most important institution within an economy; their existence is based on protection of the value of a currency. Central banks are charged with a role of caution. As the saying goes: ‘Take away the punchbowl just as the party gets going.’ These institutions are the guardians against financial excess. Yet all the major central banks contributed to the build-up of excesses that led to the recent crisis.

After Paul Volker’s chairing of the Federal Reserve ended in 1987, central banks ...

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