I ran a poll on LinkedIn and Twitter, asking who is to blame for the rising systemic risk. The overwhelming majority on both agreed. The options were: Covid, Putin, the central banks and it’s just bad luck. The LinkedIn poll attracted 106 votes and the Twitter one 23.
The results are shown in the following plot.
The majority blamed the central banks for the rising systemic risk.
A poll like this is of course not very scientific, the sample is small and self-selected, but the people I’m connected to on twitter and LinkedIn tend to be professionals in the economic and finance worlds so the poll is indicative.
I tend to agree with the poll.
At the root of the problem is the central banks’ the mistaken belief that the crisis in 2020 was the same as the crisis in 2008 and hence meriting the same policy response, injections of liquidity, which then hit the economy at the same time demand was rising, a classical procyclical policy response, now driving inflation — the current main driver of systemic risk.
Is it The Illusion of Control?