A few weeks after the Coruna virus epidemic, the world’s most powerful central banks have once again swept to Muhammad Al-Arian writes heart of crisis management, how they emerge from this emergency – and how they will affect their political independence, tasks and reliability – are not related to what they do as far as what is happening around them. .
Muhammad Al-Arian writes
After a golden age in which central banks devoted themselves to controlling inflation and at times taming volatile trade cycles, their reputation was tarnished by the 2008 global financial crisis and the recession that followed.
But the violent policy of “doing what it takes” finally helped them win this war, but the prolonged and excessive dependence on them – the result of the failure of most developed countries to move towards a more comprehensive policy – made them lose their peace.
In the current crisis, which will shape the life of the generation, the central banks went to apply all possible tools, and employed emergency interventions in record time that exceeded even the steps taken during the global financial crisis and its aftermath.
What they have already done is surprising, including lowering interest rates, embarking on large-scale securities purchase programs, reopening emergency financing windows, and creating new windows.
The scope of this response is also unprecedented.
The “Federal Reserve” currently expanded its budgets to $ 6 trillion, which is an increase of $ 2 trillion in less than a month. It also took exceptional steps to ease the regulations, with the aim of helping banks play an important role in relief efforts.
He also continues to work closely with the Treasury, venturing in areas previously considered prohibited, either because of the risks involved or the possibility of its dangerous deviation.
As the old example says, “good is doing evil,” so much as violent interventions are welcome in containing severe economic damage, no one denies the costs and risks that come with it.
These risks are not only economic and financial but also institutional and political, which include the following:
Firstly, the Federal Reserve exposes itself to risks that go out of its control by exposing its budget to various sectors of the economy, either directly or in partnership with the Treasury, and includes extreme credit risks that come from default and bankruptcy.
Secondly, by “generating massive liquidity” to support markets, central banks can unwittingly contribute again to strengthening investor behaviors that have always caused asset valuations to separate from underlying economic fundamentals.
Indeed, the stock market rose in response to the Fed’s excessive activity, and the result will be continued reduction in liquidity risk and deepening unhealthy dependence between central banks and markets, along with increased risks of financial stability in the future.
Third .. The central banks drifting to overthrow the crisis management, and making many decisions in the midst of “the fog of war”, means that the chances of them making mistakes are very high, and the chances of them changing their positions.
Feasibility of human resources management
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