Central bankers are becoming increasingly impotent in the fight against inflation as governments strip their power – by Russell Napier (Toronto Star – July 11, 2022)


If governments are determined to subsidize bank lending by underwriting banks’ credit risk, is there really much that a central bank can do to stop them?

Who gets to create a country’s money? It may seem a simple question to answer because surely central banks create money. They don’t.

Central bankers attempt to control, with tools such as interest rates, the pace at which commercial banks make money when they make loans. However, a transformation in monetary policy in 2020 to keep credit and money flowing during lockdown saw governments, through the provision of credit guarantees over loans by bankers, assume a key role in getting banks to make loans and create money in the process.

These guarantees that you, the taxpayer, provided have encouraged bank lending that would not have occurred, especially during the economic freeze associated with lockdowns.

As we move into a post-COVID world, new reasons are being found to justify the provision of taxpayer guarantees to bankers. Through negating any credit risk to bankers in making loans, the governments are playing an important role in getting banks to expand their balance sheets and thus create more money.

For the rest of this article: https://www.thestar.com/business/opinion/2022/07/11/central-bankers-are-becoming-increasingly-impotent-in-the-fight-against-inflation-as-governments-strip-their-power.html