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Blink 3 of 8 - The 5 AM Club
by Robin Sharma
Central Banks, Instability, And Avoiding The Next Collapse
The 2008 financial crisis dramatically changed the global economic landscape. Central banks now play a very different role than they did previously, and we now face a set of new economic risks and problems. The Only Game in Town (2016) outlines the roots of these risks and problems, and what we can do to start overcoming them.
Few people paid attention to the role central banks played in the global economy before the financial crisis of 2008. Even today, most people only have a loose understanding of what they are. In layman’s terms, they’re state-owned institutions that manage a nation’s money supply.
Central banks have gone through some dramatic changes in recent years, however, and now possess a lot more power and responsibility.
In addition to printing money and managing the currency in circulation, central banks are now tasked with fostering economic growth and employment. They’re also responsible for ensuring financial stability by monitoring the banking industry.
Consider the Federal Reserve System, or the Fed, which serves as the central bank of the United States. It oversees the nation’s financial system by supervising and regulating banks.
Because of the problems caused by the 2008 financial crisis, central banks have been forced to venture into potentially dangerous new economic waters. When the US housing market started to collapse in 2008, some central bankers had to interfere by leveraging monetary policies that had never been used before.
In June of 2014, for example, the European Central Bank pushed the interest rate on bank deposits into the negatives: an unprecedented move in times of economic stability. Depositors were thus paying to store their money in the bank rather than earning interest from doing so.
The move was aimed at boosting the economy by incentivizing people to spend more. Instead, it just hurt people who were saving their money by taking it away from them. The full repercussions of this policy remain to be seen.
Where have these changes been leading us? What effects will they have in the long run?
It is now crystal clear the central banks ended up taking an overly relaxed approach to the deregulation of financial activities.
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Try Blinkist to get the key ideas from 5,500+ bestselling nonfiction titles and podcasts. Listen or read in just 15 minutes.
Start your free trialBlink 3 of 8 - The 5 AM Club
by Robin Sharma