Last week many central banks all round the world injected money into their banking system. The following are some of the larger actions last Friday And it did not stop there. The Fed and the ECB were busy injecting and pumping again on Monday.
The Swiss National Bank lent two to three billion Swiss francs ($1.68-$2.51 billion).
Clearly the central banks are loaning large amounts of money to the banks. Everyone just assumes that this is a good thing, but how can we be sure.
When assessing this type of action, most economists just want to know whether it will work. If something works, it must be okay. I have a different approach to economics. I am not that worried about whether an economic intervention will work. This is generally impossible to know. That is why economists argue so much.
I want to know if an economic intervention is moral. Is the action taken good or evil? These are questions that Christians can answer.
So in this case, I want to know where the money that the central banks are lending is coming from. I would also want to know how they got it in the first place. If they are lending money from their reserves, that would be okay. However, it places real limits on the extent to which they can support the banks in this way.
The Fed Frequently injects funds and rarely withdraws money. How can this happen? If the cash injections are simply book-keeping entries that increase both the assets and the liabilities of the central banks, I would be really worried. If someone counterfeits a hundred dollar note and spends it, they have stolen something that does not belong to them. If the central banks are just creating electronic money, then they are accessories to theft. That is wrong, regardless of whether or not it helps a credit crunch.
And it did not stop there. The Fed and the ECB were busy injecting and pumping again on Monday.The terms used by the news media to describe these invents sound very benign: injection, infusion, provide funding, pump in, add liquidity. They make it sound like an engineer squirting oil into the cogs of machine. It is assumed that the role of the central banks is to keep the system running smoothly, but am not so certain.