1.1 Lopsided Policy
The first years of this millennium were marred with a corporate credit crisis; this being the hangover of a credit binge associated with the stock market boom of the late 1990s. Just as this crisis ebbed we found ourselves engulfed in a housing boom and, sure as night follows day, this boom has now morphed into its inevitable credit crunch. The proximity of these boom-bust cycles has fuelled the popular perception that financial crises are becoming larger and more frequent. The following chapters will explain why this popular perception is correct.

Toward the end of the book I make some policy suggestions that, it is hoped, could begin to dampen the current chain of overlapping boombust cycles. The overall thrust of these suggestions is that avoiding the financial tsunamis comes at the price of permitting, even encouraging, a greater number of smaller credit cycles. And also at the price of requiring central banks to occasionally halt credit expansions. That is to say, the central banks must be required to prick asset price bubbles. Key to the success of any such policy will be a political climate that accepts the need for symmetric monetary policy; excessive credit expansion should be fought with the same vigour as is used to fight excessive credit contraction. As things stand neither politicians nor voters are ready for such tough love and central bankers have neither the stomach nor inclination to deliver it. In large part this is because economists have taught us that it is unwise and unnecessary to combat asset price bubbles and excessive credit creation. Even if we were unwise enough to wish to prick an asset price bubble, we are told it is impossible to see the bubble while it is in...