The Changing Role of Central Banks by Dimitris N. Chorafas (auth.)

By Dimitris N. Chorafas (auth.)

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In the US, where it showed its greater strength, the bubble was propelled by subprimes and a consort of financial vehicles evented to exploit the uninformed about the toxic waste of securitized instruments. Pools of subprime mortgages, each hardly worth a C credit rating, were securitized and sold to investors—sometimes to the bank next door. Interestingly enough, the rating of these securitized instruments was manipulated and miraculously upgraded by rating agencies to AAA. A top credit grade opened for them the huge market of institutional investors.

In the new role in which central banks cast themselves, as substitutes to the political masters of fiscal policies, they have become copromoters of sovereign debt. By running their printing presses faster and faster, they give a bad example to sovereigns, commercial and investment banks, other companies, and the common citizen while also increasing by so much the liabilities of the nation under their watch. Coupled with low interest rates, a high level of liquidity promotes superleveraging and makes the market run faster, with scant attention paid to unexpected consequences.

36 On this occasion, the economists should have brought to the attention of the Queen that not all men are vigilant enough to interpret statistics as they become available, correlate them, or contrast them with political events and use the obtained results to document their projections. US senator Tom A. Coburn is a person who has been able to do so. Interviewed by Charlie Rose on May 2, 2012,37 Senator Coburn expressed QUEEN ELIZABETH II AND THE ECONOMISTS 31 his worries about the future of the American economy.

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