Following the Great Crash of 1929, one of every five banks in America fails. Many people, especially politicians, see market speculation engaged in by banks during the 1920s as a cause of the crash.

In 1933, Senator Carter Glass (D-Va.) and Congressman Henry Steagall (D-Ala.) introduce the historic legislation that bears their name, seeking to limit the conflicts of interest created when commercial banks are permitted to underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose overriding interest was promoting stocks of interest and benefit to the banks, rather than to individual investors. The new law bans commercial banks from underwriting securities, forcing banks to choose between being a simple lender or an underwriter (brokerage). The act also establishes the Federal Deposit Insurance Corporation (FDIC), insuring bank deposits, and strengthens the Federal Reserve's control over credit.

The Glass-Steagall Act passes after Ferdinand Pecora, a politically ambitious former New York City prosecutor, drums up popular support for stronger regulation by hauling bank officials in front of the Senate Banking and Currency Committee to answer for their role in the stock-market crash.

In 1956, the Bank Holding Company Act is passed, extending the restrictions on banks, including that bank holding companies owning two or more banks cannot engage in non-banking activity and cannot buy banks in another state.

Once every six weeks, the most powerful players in the global economy meet on the 18th floor of an ugly office building near the train station in the Swiss city of Basel. The group includes United States Federal Reserve Chair Janet Yellen and her counterpart at the European Central Bank (ECB), Mario Draghi, along with 16 other top monetary policy officials from Beijing, Frankfurt, Paris and elsewhere.

The attendees spend almost two hours exchanging views in a debate chaired by Bank of Mexico Governor Agustín Carstens. Waiters serve an exquisite meal and expensive wine as the central bankers talk about the economy, growth and market prices. No one keeps minutes, but the world's most influential money managers are convinced that the meetings help expand their knowledge in important ways. "We learn what makes our counterparts tick," says one attendee.

These closed-door meetings, which are held on Sunday evenings, have a long tradition. But ever since many central banks lowered their interest rates to almost zero, bought up sovereign debt and rescued banks, a new, critical undertone has crept into the dinner conversations. Monetary experts from emerging economies complain that the measures taken by Europeans and Americans are pushing unwanted speculative money their way. Western central bankers say they have come under growing political pressure. And recently, when the host of the meetings -- head of the Basel-based Bank for International Settlements Jaime Caruana -- speaks in one of his rare public appearances, he talks about "chronic post-crisis weakness" and "risk." Monetary institutions, says Caruana, are at "serious risk of exhausting the policy room for manoeuver over time."

These are unusual words, especially now that the world's central bankers, five years after the Lehman crash, are more powerful than ever. They set interest rates and control the money supply, oversee governments and banks and, like Bank of England Governor Mark Carney, are treated a bit like movie stars by the public.

To an extent unprecedented in postwar history, monetary watchdogs -- who are not elected and are usually independent of their countries' governments -- determine what happens in politics and on the markets. They are the new "masters of the universe." Yet their internal discussions on the effects of their power do not give the impression of resounding success. Growth is limping along in the world's major economies; banks, households and governments are deeply in debt; and the bankers' so-called unconventional monetary policy is running up against its limits everywhere.

 

 

 

The dispute over deflation in the eurozone has become increasingly acrid. Jürgen Stark, the ECB’s former chief economist, accused the International Monetary Fund and others calling for QE of scaremongering. “Warnings about outright deflation and calls for ECB action are misguided and irresponsible,” he wrote.

The IMF says there is a 20pc risk of deflation in the eurozone. It also warns that chronic “lowflation” of 0.5pc is also corrosive, making it harder for Italy, Portugal and others to claw back competitiveness without suffering a further rise in their debt ratios. Each year of lowflation pushes southern Europe closer to the limits of debt sustainability. EMU-wide inflation fell to 0.5pc in March, far below the European Central Bank’s (ECB’s) 2pc target. Andrew Roberts, from RBS, said the rate was nearer 0.3pc after stripping out VAT tax rises. The RBS “deflation vulnerability indicator” has risen to 80pc for Spain, 64pc for Ireland, 55pc for the Netherlands and 52pc for Portugal.

Peter Schaffrik, from RBC, said eurozone inflation was likely to rebound in April since the timing of Easter distorted the data, but warned that there was a “powerful dynamic” holding Europe back. He said the European Central Bank would have to ask whether its staff model was reliable.

Sweden’s Riksbank admitted in its latest monetary report that something unexpected had gone wrong, perhaps due to a worldwide deflationary impulse. “Low inflation has not been fully explained by normal correlations between developments in companies’ prices and costs for some time now. Companies have found it difficult to pass on their cost increases to consumers. This could, in turn, be because demand has been weaker than normal,” it said

Pushkin introduced Germans to the strange but likable Russian soul. And cities like Moscow and St. Petersburg wouldn't be what they are today without Germans. That's the romanticized side of German-Russian relations.  Then came the wars of the past century and the devastation the Germans unleashed on the Soviet Union. Since then, the image Germans have of Russia is inaccurate.

The postwar generation grew up with a latent fear of the Russians. In the east of Germany, people saw them as an occupying force, while in the west many believed that an invasion was imminent. Then came Gorbachev. The Germans celebrated him because he gave them the gift of reunification. In one blow, the aversion of the 1960s and 1970s to everything that came out of the Kremlin seemed to be forgotten. It was a time of enthusiasm and relief, especially in the West. Gorbachev became a much-admired figure for Germans. They projected their fantasies for a new relationship between Germans and Russians on him and the new Russia. The Germans believed the Russians might somehow become just like them.

But Russia isn't Europe, and it never will be. Russia never went through any period of enlightenment after the destruction wrought by Stalin on the country's soul. Germans never seriously considered that fact, because it would have interfered with their image of Russia.

They should have been warned. Not only because Mikhail Gorbachev in no way represented the kind of hard-nosed leaders the Russians had become accustomed to over hundreds of years. Nor did they listen to what Russian writer Aleksandr Solzhenitsyn had to say about perestroika's inventor. He said Gorbachev's leadership style wasn't governance, but rather "a thoughtless renunciation of power." Gorbachev ultimately became the most unpopular Kremlin leader in recent history.

Despite some dire warnings about risky trading and the threat posed by overly indebted banks, the mood last week at the International Monetary Fund's spring conference was one of calm.

We have turned a corner since the financial crisis, the Washington-based organisation says. Normality is returning. And this will mean establishing normal interest rates (up from 0.5% in the UK to 2%-3%, according to Mark Carney), restoring normal inflation and generating steady growth in the west of 2%-3%.

Officials expect the US to lead the way. As consumer-in-chief, it will propel the world economy and global growth much as it has in the last 60 years. The dynamism of the US economy and its huge capacity to buy stuff will make life better for everyone, goes the rather tired argument.

The legacies of the crash will be disposed of quietly. Having spent north of $3 trillion pumping funds into its economy and maintaining the cheapest borrowing costs in more than 100 years, the US central bank will find a way to sell this money back to the market, while at the same increasing rates, without much more than a ripple disturbing the markets.

Central bankers in London, Frankfurt, Tokyo and especially in the Federal Reserve will make sure it all works smoothly. Suddenly officials at the IMF are using the term "finely calibrated" in their discussions. No longer are governments involved in crude, large-scale pump-priming to rescue bankrupt banks. Today they execute technical exit strategies that magically restore the old order without any losses or panic.

One official called this the "Goldilocks exit", by which he meant the transition would be one that involved the patient getting neither too hot nor too cold, but with a temperature that was just right.

George Osborne revealed himself a cheerleader for the technocratic answer to debt and financial risk. The chancellor declared on Friday that central banks and regulators would make sure the west's economies had a bright future, as they withdrew the post-2008 stimulus and locked down risky lending.

It would be a neat trick. And the betting must be that it will fail.

It will fail because policymakers will be unable to cope with more fundamental forces at work.

First there are the debts: government debts and household debts across the developed world. Put simply they are still too high. Bank debts in the eurozone and corporate debts in many emerging-market economies are similarly at risk from small financial shocks.

The eurozone poses a particular problem. Spain is growing, but only with the help of government cash. Like Ireland, its banks are still in a parlous state. France is staggering on, but Italy is in permanent recession. Inflation is falling to the point that many worry it will go into reverse. Deflation means not only falling prices but also falling wages. The Germans have blocked initiatives that might boost output, especially in weaker countries, and are preventing the European Central Bank (ECB) from printing money to boost spending. ECB boss Mario Draghi may break free of German control, but any action will be too late. Casualties already lie everywhere.

Another part of the problem is the legacy of savings generated in Asia. That savings glut has had to find a home, and one that provides a good return.

There is about $70tn-$80tn invested in assets of various kinds from government bonds to property and exotic derivatives. The IMF highlighted how a $300bn market in US credit mutual funds in 2000 has grown to $2tn today. These funds are invested in junk bonds that are difficult to sell when the panic starts, making the panic even worse.

Diego Garcia

There is no "indigenous" population. There were imported workers who worked the coconut plantations. These people are "bitter" because the US will not GIVE them things. Greedy sour grapes and scumbags. This Brit chick is a terrorist inciting people to violence. Notice how careful she is to blame the US though t was a joint effort between the British and Americans. I hope the layabouts starve to death if they continue to refuse to work where they are. There are no "Citizens" of Diego Garcia. As I said they were simply workers hired to work the cocoanut plantations. Screw them.