Picked up The Origin of Financial Crises: Central Banks, Credit Bubbles, and the Efficient Market Fallacy, by George Cooper recently.
Yeah, I know … sounds really exciting doesn’t it. But in reality, from what I’ve read so far, the book seems to do a great job of explaining how the global economy has been pushed into crisis, and offers potential solutions … one of these being that “avoiding financial tsunamis comes at the price of permitting, even encouraging, a greater number of smaller credit cycles.”
In other words, Mr. Cooper is arguing that instead of staying out of the markets when the economy is growing, but jumping in and cutting interest rates when the economy is contracting, the world’s central banks should permit some short-term cyclicality in order to purge the system of excesses, which can be accomplished by preventing excessive credit creation (which he defines as credit growth far ahead of economic growth).
This doesn’t mean that Mr. Cooper is arguing that the central banks stay out completely; when things do reach crisis proportions, as they have currently, central banks do need to intervene, but they need to be careful NOT to inflate another credit bubble.
I need to finish reading the entire book to really give it a thorough review, but thus far it’s quite an interesting read.