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Updated: 22:42 25/09/21

Are our financial overlords losing touch with reality?

By Duncan Richardson, News Editor

23 Mar 2016

Institutions which saved the global economy in 2008, are losing their magic touch if conventional wisdom is to be believed.

Eight years after Hank Paulson went before congress and begged for financial bailout, central banks have cut interest rates 637 times and bought £8.5 trillion in financial assets. As the global economy once again slows, central banks are intervening like never before.

In the last 6 weeks the Bank of Japan has lowered interest rates into negative territory. Whilst in Europe the ECB increased their monthly policy and are now unlikely to raise interests in 2016.

Central banks are running out of ammunition as their policies fail to ignite growth. Instead, the focus is now shifting to governments to directly stimulate growth. This is at odds with government policy of austerity and financial prudence. George Osborne has bet his political future on balancing the budget and any U-turn would be disastrous.

With politicians unlikely to change course central bankers are now openly discussing the previously unthinkable, “helicopter money.” This would involve central bankers printing money and passing it directly to consumers in attempt to increase spending and investment.

This is hyper monetary policy at best, but desperate times call for desperate measures.

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