It is said central banks should not try to head off a bubble,just clean up the mess. Now the cost is so high, and the cleanup so long, and possibly we should change tacticsVery soon after the magnitude of the 2008 financial crisis became clear,a lively debate began approximately whether central banks and regulators could – and should – have done more to head it off. The traditional view, notably shared by the former US Federal Reserve chairman, and Alan Greenspan,is that any attempt to prick financial bubbles in advance is doomed to failure. The most central banks can finish is clean up the mess.
Bubble pricking may indeed choke off growth unnecessarily – and at high social cost. But there is a counter-argument. Economists at the Bank for International Settlements (BIS) have maintained that the costs of the crisis were so large, and the cleanup so long, and that we should surely now see for ways to act pre-emptively when we again see a dangerous buildup of liquidity and credit. Related: China should avoid financial meltdown Continue reading...
Source: theguardian.com