The three bankers listed as most powerful people in the whole world are Ben Bernanke, Jean-Claude Trichet, and Masaaki Shirakawa. They fall in positions 4, 5, and 6 respectively (Hummel, 2011). As central bankers, they hold important top government positions that they have attained through formal appointments. Masaki Shirakawa heads the Bank of Japan while the United States Federal Reserve is headed by Ben Bernanke. The European Central Bank (ECB) is headed by Jean-Claude Trichet. They have been considered enigmatic, enormously powerful, and wiser than many in creating solutions for averting calamities such as the recent global economic crisis (Hummel, 2011). Besides, the three personalities have proven their influence and power above most countries’ leaders. Even though their influence may be outside political spheres, the impacts of their unprecedented actions are being felt in almost all sections of the economy (Anon., 2010). Unlike countries’ leaders, they can predict trends in economies and warn leaders just in case there is a need to boost the money supply in avoiding calamity (Fujikawa & Ito, 2011, April 23). Besides, they are very wealthy, understand financial matters, and have adequate knowledge of how global disasters occur during financial crises. For instance, in 2008, when country leaders failed to calm the financial storm, they used their academic background, decisive actions, and power of judgment to weather the financial and economic crisis saving not only their nations but the rest of the world from total melt-down (Fujikawa & Ito, 2011, April 23). Additionally, they are financial policymakers who have succeeded where others have failed. For instance, Ben Bernanke helped to save America from Great Depression in 1930. They have achieved this by extending financial credits, resuscitating immobilized and fragile economies, inflating the money supply, opening up money spigots, and zero-rating interest rates (Anon., 2010). Most countries’ leaders may not be able to match the abilities displayed by these three individuals in saving economies and the whole world from financial catastrophes.
One of the main reasons why banks united to lower interest rates was to spur investments in factories, land, machinery, technology, social infrastructure, labor force, and innovation. One of their main aims was to stimulate the economy since cutting down or lowering interest rates raises inflation (Hummel, 2011). These banks united to inject into the economic stimulus money since recessions result in major economic crises (Anon., 2010). It is important to note that recession culminates in the collapse of currencies, debt repudiation and eventually causes national bankruptcies. Lowering interest rates by banks was a strategy that aimed at guarding economies against crises by allowing money to flow easily in an economy. It is imperative to understand that one of the reasons for the aggravated global financial crisis in 2008-09 was the tightened monetary policies that most nations had (Fujikawa & Ito, 2011, April 23). During the crisis, many companies, financial firms, and other big firms went bankrupt and could not recover due to the pre-crisis high-interest policies. Additionally, banks came together to reconsider the high-interest rate policy to pave a way out of bankruptcies that had aggravated unemployment problems. During the financial crisis period, most banks in their nations such as in the US and other advanced countries teamed up to aggressively lower their interest rates and that of other nations. This was meant to aid them in overcoming the crisis despite the depreciation in exchange rates (Anon., 2010). For instance, in 2008, Korea was assisted by the US during the recession to lower its interest rate despite the depreciation in exchange rates (Fujikawa & Ito, 2011, April 23). Moreover, low-interest rates by the banks created room for an increase in fixed capital investment spending by the businesses. This also helped raise capital stock per worker employed and nations’ capital stock. To overcome the recession, banks saw the need to encourage business start-ups and stimulate the economy through direct foreign investments.
The US monetary policy has been faulted by many critics as a kind of policy that is full of legal constraints. During the 2008 crisis, the Fed, government agencies, and treasury could not act freely to solve the situation since they had to operate within existing legal authorities (Hummel, 2011). The existing policy poses a challenge in addressing overhangs, and it dictates that capital offered by the government must be accepted by the banks while at the same time forcing investors to enter into debt-for-equity swaps (Hummel, 2011). Other constraints are concerning loans modifications, legislative actions to obtain new legal authorities, political constraints, and time. The latter caused senior debt issues due to blunt actions taken on mutual funds of the money market and giving guarantees on AIG liabilities. Improving monetary policy in the US will require deeper integration of the international capital market. This will lower borrowers’ financing costs and help import capital for use by the nation.
There is a need to increase securitization. This will ensure that money needed as loans don’t remain in balance sheets in banks but are diversified among participants across a wide market (Anon. 2010). This will reduce finance costs as all assets will be given securities. Moreover, a good monetary policy should create room for private pools of capital to grow. Through this, financial markets will be effective since there will be an increase in private equity firms and hedge funds. Measures should be put in place to ensure financial derivatives grow.
Anon. (2010). Keynote address by Jean-Claude Trichet President of the European Central Bank. CESifo Forum, 11(3), 8-11.
Fujikawa, M. & Ito, T. (2011). World News: Bank of Japan Says Contraction Is Likely. Wall Street Journal (Eastern Edition), p. A.12.
Hummel, J. (2011). Ben Bernanke versus Milton Friedman: The Federal Reserve’s Emergence as the U.S. Economy’s Central Planner. The Independent Review, 15(4), 485-518.