Tuesday, November 15, 2011

There are limits to what a central bank can do

By Robert Romano
“If a monetary deal’s going to work, the central bank has to have unlimited powers to intervene to support economies, and indeed banks, to prevent collapse.”

That was how the UK’s Business Secretary Vince Cable, a Liberal Democrat, put it on the BBC, speaking on the European Central Bank (ECB). He was basically complaining that Article 123 of the Lisbon Treaty, which created the Eurozone, expressly forbids the ECB from making direct bond purchases of government debt.

Rarely are politicians so blatant about the pernicious practice that central banks engage in to prop up their host governments — i.e. print money to pay the debt.

While it may make one think of the historical examples of Zimbabwe or the Weimar Republic, the practice is actually incredibly common. In fact, these examples pale in comparison to the largest debtor in history, the United States of America.
Get full story here.

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