The “Central Banks’ Central Bank” Slams the Federal ReserveSubmitted by PWA on Tue, 07/17/2012 - 07:08
The central banks’ central bank, the Bank of International Settlements or “BIS” – which is the world’s most prestigious mainstream financial body – has slammed the policy of America’s economic leaders.
This is especially dramatic given that the banks own the Federal Reserve, and that the Federal Reserve and other central banks – in turn – own BIS. In other words, BIS is criticizing one of its main owners.
Economics professor Michael Hudson notes:
Paul Krugman has urged the Federal Reserve to simply lend banks an amount equal to their bad loans and negative equity (debts in excess of the market price of assets). He urges a “Keynesian” program of spending to re-inflate the economy back to bubble levels. This is the liberal answer: to throw money at the problem, without seeking structural reform.
[BIS] disagreed last week in its annual report. It said – and I believe that it is right – that monetary policy alone cannot solve an insolvency problem. And that is what Europe has now: not merely illiquidity for government bonds and corporate debt, but insolvency when it comes to the ability to pay.
In such circumstances, the BIS explains, it is necessary to write down the debt to the amount that can be paid – and to undertake structural reforms to prevent the Bubble Economy from recurring.
For background, see this and this.