Webcast dr. Robert Inklaar: Central bank should supply funds to troubled financial firms

"The US Fed should have been supplying funds to troubled financial firms as freely as the European Central Bank". This is stated by research associate Robert Inklaar of the Faculty of Economics and Business in the latest webcast of knowledgedebate.org, the discussion platform of the University of Groningen.

Inklaar first explains the origin of the financial crisis. Due to financial innovations, banks have been able to repackage and re-sell bad loans. As a result there is a lack of trust between banks: they don’t borrow and lend each other money anymore.

Central banks have always been the lender of the last resort. Now they have been printing money to create enough liquidity to prevent bankruptcies. In theory, central banks can print as much money as they want to as long as it doesn’t end up in the hands of the public. In order to solve the crisis banks should come clean about the mortgages they hold.

In the mean time the central banks can buy time by printing money. The European bank was more alert in this case. They started to provide liquidity sooner and on a broader basis than the Americans: a lesson to be learned for the FED.

Do you agree or disagree? You can watch the movie and join the discussion on our website: www.rug.nl/kennisdebat/