Wednesday, September 14, 2016

Central Banks' Prized Independence May Be a Hindrance in Managing Inflation

Central Banks' Prized Independence May Be a Hindrance in Managing Inflation
Written by: Tom Fairless
Blog by: Brittany Lopez
Published on: September 11, 2016 t 7:01pm

According to this article, the central banks could be facing big issues. Since the government has allowed them so much independence (independence they are determined to keep), many economists fear that inflation will becoming critically low and the economy will be unable to support this. Additionally, they fear that (because of this independence) the central banks are gaining too much power. Some have already attempted to use "helicopter money" (which could involve "an increase in public spending or tax cuts financed by the central bank") as a bargaining chip to gain even more power within the global economy. Some argue that these actions take the central banks out of the financial sector and transport them firmly into the political sector - a sector they should definitely not be dabbling in. 

The following graphs shows the drastic difference between the central bank's balance sheets and those of their respective governments: 

However, some lobby for the usage of helicopter money - proclaiming that there is not much difference between helicopter money and quantitative easing (a fiscal policy currently in place). 

As a solution, there should be cooperation between the central banks and their respective countries. The problem, however, being that in Europe 19 countries must all come to an agreement on how to move ahead. 

This relates to global marketing because if the markets themselves are crashing because of bad inflation rates (because what goes down must come up) all corporations (wherever they are located) will be affected. The central banks have a lot of fiscal power that directly affects the economy. If they become too independent, the urge to implement policies on the political end will surely increase. 

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