Macroscope | Global banker witch hunt hurts economic recovery
Bankers facing a barrage of new capital requirements, regulations and investigations must feel as if they are targets of a witch hunt.
If truth be told, they are. It’s got so bad that the Dutch authorities have forced bankers to swear the following oath: “I swear that I will endeavour to maintain and promote confidence in the financial sector. So help me God.”
But beating up on bankers and banks – which produce most of the world’s money – creates a problem because it constrains the growth of money supply.
In consequence, Europe is in a slump and so is Japan. As for the United States, it has nominal aggregate demand growing below a trend rate that dates back to 1987. Even China is sagging a bit. This is all because of relatively slow money growth.
There is nothing more important than a balance sheet
The Centre for Financial Stability publishes the most detailed monetary data available for the US economy. The data shows that even though the Fed has been pumping out state money at a super-high rate since the crisis of 2009, it hasn’t been enough to offset the anaemic supply of money produced by banks – bank money. State money still only accounts for 21 per cent of the total money supply, broadly measured, while M4 in total is growing just 1.7 per cent a year.
