The chiefs of many of the world’s central banks have a secret meeting once every two months to discuss global economic woes and different countries’ aggressive efforts to manage their economies.
Since 2007, central banks have infused over $11 trillion into the global financial system. It’s a strategy not found in economic textbooks.
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The infusion is a rather high stakes experiment drawing in part on academic work from the work at Massachusetts Institute of Technology (MIT) during the 1970s and 1980s.
The central bankers have cut their own path, often against the backdrop of national governments who cannot agree on fiscal policy.
If their bets are winning ones, a repeat of the Great Depression in the 1930s will have been avoided. If they are losing ones, central banks may end up losing some of their power and independence.
These are both tools that are considered critical during times like the 2008 financial crisis.
After their secret meeting in June, they were warned by one of their hosts that emergency measures such as the ones that have been taken to resolve the 2008 crisis can have undesirable effects if continued for too long.
They also allow governments to put off making the necessary decisions to address burgeoning budget deficits and unbridled government spending.
Central bankers are one of the most isolated groups of people in the world. Their decisions govern the flow of money. If it’s open, the new cash heats up economies, drives down interest rates, and brings down unemployment. The risk is inflation.
If it’s closed, interest rates rise, economies slow down, and prices increase. The risk is overdoing it on the economic slowdown portion.
Central bankers can’t freely discuss their contemplations or decisions that have yet to be announced.
They could give traders an unfair advantage or risk disturbing the markets.
Although the bankers form a tightknit fraternity
, they stop short of formally consolidating their moves. But the relationship they develop enables them to pick up the phone in an emergency and gain agreement for decisions that need to be made quickly to ensure financial stability.