Central banking has led to several problematic developments that societies across the world are now suffering from. This article provides an overview of the current central banking practice of inflation-targeting and reviews the problems associated with it. These include the inflation of asset prices leading to class and inter generational inequality and the accumulation of unsustainable public and private sector debt that burdens future generations. The absence of a market-based mechanism allows governments and households to engage in fiscal largesse. Other problems include the creation of perverse investor incentives in the form of moral hazard and financial repression and the excess consumption the earth’s finite resources by propping up economic growth. The complexity of the economy and suitability of central banks’ current decision-making by committee is discussed and a proposal for a new approach is made with an example for Australia.
Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4209973