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An advice to Central Banks

by on 03/08/2012

I have a excellent plan to solve the monetary problems caused by sovereign debts in Europe. Most of the central banks activity is the trade with the Government trusties. Trade with these trusties is also the main source of profit of the commercial banks and source of the inappropriate behavior of the bankers. To prevent situation, when only French or Russian stile revolution can change the political social evil the activity of these institutions causes, the best would be to let the central banks to purchase all the freely marketed government securities. If this step would cause some increase in inflation pressures, the minimum reserve rate requirement should be raised accordingly. By this step could be achieved several goals.
1.Reduce the government debts and the interest payments that burden the national budgets. (The interests paid to the central bank will be registered as Government income).
2.The banks would lose a chalk of their activities, where they without risk can make profit, which is translated later to unjustified reward to the executives and managers.
3.The Central Bank would have much better control on the credit volume. It could pour directly money in the system by printing it, and sucking it out by increasing the Reserve Rate Ratio.
4.To prevent from government to misuse  the system of unlimited “free money” to spend, the government expenses and deficit should be controlled directly, by limiting it to the level of economic growth plus half of the inflation rate.
5.The only reason to increase the deficit above the mentioned limit would be war, and this should be financed directly by tax increase on the companies and wealthy. This would make wars very unpopular among the decision makers, and it is also only for good.

The only problem not solved by such a change of the system is, what will do all the unemployed bankers. 

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  4. I maybe wrong, but it seems to me that this is what is called “Quantitative Easing”. That brought 5 trillions to USA banks by some reckoning (of the TARP overseer).
    In any case a whole bunch of Germans (not so much Merkel herself) around the Bundesbank, have balked at more QE after BCE head Dragghi indulged in 2 bouts of it, for a trillion Euros…

    At this point the worst problem is that a whole bunch of Germans don’t understand they are playing with fire. As I explained in earlier essays, the ECB system was set-up by French Socialists who thought smart to duplicate the system installed by Pompidou, an employee of Banque Rothschild…


  5. Forget to mention one other very important result of the above proposed changes in Commercial Banks – Central Bank relation, the increased stability of the commercial banking system. This consequence is just to obvious, soi forget to mention it.


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