Central banks should get out of the business of setting interest rates
In other words, the money will come from charging higher rates to banks that avoided the risky actions taken by SVB. And I’m sure you can guess who will ultimately end up paying: it’s essentially a tax on those who put their money in good banks to pay those who chose to bank with a bad one.
A lot of companies put far too many eggs in SVB’s basket , specifically because the bank was able to treat them more favourably than its more conservative competitors. The government’sThis advertisement has not loaded yet, but your article continues below.By now, it should be fairly easy to see how the failure to learn the lessons of one financial crisis can plant the seeds for the next one.
Rather than having central banks drive interest rates — which leads them to use it to try to solve the issue de jour while inevitably setting the stage for further problems down the road — they should be left to the forces ofWhen it comes to the price of virtually anything else — from resources, to cellphones, to sneakers — people generally recognized that centrally managing prices leads to market distortions.
This leads to similar unintended consequences as other price controls. In a free market, the interest rate would be the equilibrium between the amount of money businesses and individuals are willing to save at a given rate and the amount people and companies want to borrow at that price.
Having central banks manipulate the rates to further their own policy goals risks sending the wrong signals to the market. And that inevitably leads to problems like the one we’re currently witnessing south of the border.
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