The power of central banks

I’ve been re-reading one of the great books on Japan’s financial crisis, Princes of the Yen by Richard Werner (2003). We have often written about how independent central banks have a central flaw: their existence is undemocratic. Why? Because little matters more for an economy than how its money supply is controlled.

Central bankers know this, and control money supplies. Look to Japan in the 1990s. Despite an “obvious deflation problem” and a shortage of credit (despite low interest rates) that stopped most potential borrowers from doing so, the Bank of Japan (BoJ) refused to expand the money supply, says [...]

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