Shadow banking system and macro-economic regulation
The World, and the US in particular, are facing a serious risk of deflation as individuals and corporations reduce their excessive debt/leverage all at the same time. Ben Bernanke, the Chairman of the Federal Reserve, explains why in this case, the central banks have to work with the treasuries to fight this risk. We also look at why the successive rate hikes have failed to curb the bubbling demand for credit: the answer is called shadow banking system. Ben Bernanke, May 2003, about the different roles of a central bank in inflationary and deflationary times, taking the example of Japan: "The Bank of Japan became fully independent only in 1998, and it has guarded its independence carefully, as is appropriate. Economically, however, it is important to recognize that the role of an independent central bank is different in inflationary and deflationary environments. In the face of inflation, which is often associated with excessive monetization of government debt, the virtue of an in