Politicians and central bankers are going way overboard in blaming and disciplining banks and bankers for the financial crisis, says Steven Hanke, an economist at Johns Hopkins University and a senior fellow at the Cato Institute
"Bankers — facing a barrage of new capital requirements, regulations and investigations — must feel as if they are targets of a witch hunt," he writes in a commentary for the journal Global Asia (reprinted on Cato's website). "Well, if the truth be told, they are."
So why is this happening?
"The world's politicians and central bankers — the ones who enabled the excesses that led to the financial crisis of 2009 — have to blame someone else for their misdeeds. And what is a more inviting target than hapless bankers?"
But bashing the producers of money raises a problem, Hanke argues.
"It constrains the growth of money broadly defined. In consequence, Europe is in a slump, and so is Japan. As for the U.S., it's stuck in a growth recession with nominal aggregate demand growing much more slowly than the trend rate since 1987," he explains.
"Even though the Fed has been pumping out State Money at a super-high rate since the crisis of 2009, it hasn't been enough to offset the anemic supply of money produced by banks — Bank Money. Even after six years of pumping, State Money still only accounts for 21 percent of the total money supply broadly measured."
Whatever the Federal Reserve's policy on banks, Michael Ivanovitch, president of MSI Global research firm, says it deserves credit for boosting the U.S. economy.
He puts his argument in interesting terms, citing the U.S. trade deficit as evidence of strength.
"The accelerating U.S. economy is on course to generate this year a trade deficit of $700 billion – about 4 percent of its GDP, which can be considered as America's net contribution to the growth of the world economy in 2014," Ivanovitch, a former Fed economist, writes in a commentary for CNBC
"That remarkable achievement must be credited to the Federal Reserve's effective crisis management."
And why does the central bank deserve the credit?
"Working against the headwinds of a sharply tightening fiscal policy, and the lingering problems in the financial system, the Fed has made it possible for the economy to bounce back from the widespread ravages of one of its worst financial crises on record," Ivanovitch says.
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