Central bank balance sheets in the major economies now range from 20 to 30 per cent of GDP, two-thirds of which is due to the emergency measures that have been taken to stimulate economies since the crisis began. As far as I am aware, the global scale of this action is completely unprecedented.
Critics see these bloated central bank balance sheets as the culmination of a decades-long process in which periods of excessively easy monetary policy have caused inflation, asset price bubbles and misallocation of investment flows in the economy. For example, this FT piece by former Republican presidential candidate Ron Paul concludes as follows:
“The world is awash in US dollars, and a currency crisis involving the world’s reserve currency would be an unprecedented catastrophe.”
Such an outcome is perhaps conceivable, but is far from inevitable. Read more