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Opinion | Central bankers can no longer deny the moral consequences of keeping interest rates low
- Low rates encourage asset bubbles, discourage long-term investments, widen the wealth gap and promote excess consumption, hastening climate change. They ultimately exact a moral cost – on the poor and the planet
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Top central bankers are meeting virtually in Jackson Hole, Wyoming, this weekend to discuss “macroeconomic policy in an uneven economy.” Everyone is eagerly awaiting Jerome Powell’s comments about the US Federal Reserve’s monetary policies in the wake of global and national imbalances.
Central bankers carry the aura of cardinals since they manage money mysteriously through the creation of central bank reserves.
For nearly 25 years, the Fed’s balance sheet was around 6 per cent of national gross domestic product. This had doubled to over 15 per cent of GDP in 2008, and then to 34.6 per cent by the end of June this year. The Bank of Japan (BOJ) is the champion, with assets worth 132 per cent of national GDP, with the People’s Bank of China at 33.9 per cent and European Central Bank (ECB) at 60.6 per cent.
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These four central banks account for US$30.1 trillion in assets or 35.5 per cent of world GDP. Since just before the 2008 Lehman collapse, the Fed, BOJ and ECB have increased their combined assets from US$4 trillion to US$24.3 trillion. Their purchases in sovereign debt, corporate bonds, mortgage papers and exchange-traded funds move markets.
Small wonder everyone hangs on the words of central bankers.
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Last year, Powell’s Jackson Hole speech laid out the Federal Open Market Committee’s consensus statement. His address was revealing because the words “wealth”, “climate change” and “race” did not appear. “Inequality” appeared once in a footnote.
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