Frank Shostak on JPMorgan Chase and central banking

Frank Shostak comments on the recent JPMorgan Chase fiasco on Mises.org.

According to some commentators, the huge $2 billion loss by JPMorgan Chase, caused by the risky bets placed using the bank's money, raises the need to implement the Volcker rule - more controls on banks' activities. Critics of the Volcker rule are of the view that it will only make things much worse by stifling the efficient allocation of scarce real resources. Our analysis holds that as long as we have a central bank, in order to minimize the damage its policies inflict, it makes sense to impose tighter controls on banks. It is the central bank that enables banks to practice fractional-reserve banking, thereby polluting the economy with money out of thin air. A better alternative is of course to have genuine free banking without the central bank.