Central bankers at the end of their rope?: monetary policy and the coming depression

Central banks of the advanced economies—despite having been designated by theirrespective economic and political elites as their states’ primary economic policyinstitution—have failed since 2008 to permanentlstabilize the world’s banking systems orrestore pre-2008 economic growth.Rather, central bank liquidity injections since the 1970s not only produced the 2008-09crisis, but they then became the central banks’ solution to that crisis; and now promiseto cause of the next one, as a further tens of trillions of dollars of liquidity-enabled debthas since 2008 been piled on the original trillions before 2008.Fed policy since 2010 has represented an historically unprecedented subsidization ofthe financial system by the State, implemented via the institutional vehicle of the centralbank. Central banks’ function of lender of last resort, originally designed to provideexcess liquidity in instances of banking crises, has been transformed into thesubsidization of the private banking system, which today is addicted to, and increasinglydependent upon, significant continuing infusions of liquidity by central banks.Taking away this central bank artificial subsidization of the private sector, especially thefinancial side of the private sector, would almost certainly lead to a financial and realcollapse of the global economy. It is thus highly unlikely that the Fed, Bank of England,Bank of Japan or European Central Bank will be able any time soon to retreat much fromtheir massive liquidity injections that have been the hallmark of central bank policy since2008. Nor will they find it possible to raise their interest rates much beyond brief tokenadjustments. Nor exit easily from their bloated balance sheets and extraordinary historicpolicies of liquidity provisioning. That liquidity not only bailed out the banks and financialsystem in 2007-09, but has been subsidizing the system ever since in order to prevent are-collapse.Truly, as this book addresses in painstaking detail, central bankers are at the end oftheir rope. Wrought by various growing contradictions, central banks, as currentlystructured, have failed to keep pace with the more rapid restructuring and change in theprivate capitalist banking system. As a result, they have been failing to performeffectively even their most basic functions, or to achieve their own declared targets ofprice stability and employment. Central banks must undergo fundamental restructuring and change. That restructuringmust include the democratization of decision making and a redirecting of central bankstoward a greater direct service in the public interest. A Constitutional Amendment istherefore proposed, along with 20 articles of enabling legislation, addressing whatreforms and restructuring of central banks’ decision making processes, tools, targets,functions, as well as their very mission and objectives, are necessary if central banksare to become useful institutions for society in general. The proposed amendment andlegislation defines a new mission and general goals for the Fed—as well as new targets,tools and new functions—to create a new kind of public interest Federal Reserve for the21st century.