Two and a half years ago I was seeking to identify how the volume of credits bank extend could be increased. Currently I am thinking through how the latest decisions by the Central Bank can become more efficient.

Economists are odd persons. One day they complain about credit tightening and warn that the economy will contract and unemployment will hike unless the financial system extends credits. They consider the credit tightening as one of the biggest problems of the economy and seek to solve that problem.

As you might remember, I have written a number of commentaries on the causes and possible impacts of the credit tightening in Turkey during the last quarter of 2008 and 2009. After all, nobody is tying our hands. So, taking the advantage of this, I had suggested a number of solutions. 

The dilemma of economists

I maintained that banks' assumed that the ability of the debtors to repay their credits in the face of the uncertainties created by the global crisis and reduced the amount of credits they extend causing the credit tightening. A second reason was that the volume of external funds banks could access decreased. Taking departure from these findings, I suggested that a fund that partially guarantees the repayment of the credits which shall be financed through budget transfers shall be established.

After a short while, however, the economists unhappy with the credit tightening find themselves complaining about the rapid credit expansion giving examples about how this rapid credit expansion can cause disasters. They stress that many of the financial crises in the near history were preceded by rapid credit expansion. 

Central bank mafia

The following lines are extracted from the introduction of a paper presented at a conference in one of the world's leading universities: "Credit lies at the heart of crises. Credit booms sow the seeds of subsequent credit crunches. This is a key lesson of past financial crashes, manias and panics. It was a lesson painfully re-taught to policymakers during the most recent financial crisis." The authors are again members of the "central bank mafia". This time the mafia men are experts from the Bank of England (for more information please check the Columbia University Center of Capitalism and Society 2010 conference papers).

Having quite knowledge about such studies, I personally am also afraid of rapid credit expansion. Two and a half years ago I was seeking to identify how the volume of credits bank extend could be increased. Currently I am thinking through how the latest decisions by the Central Bank can become more efficient. This is exactly the reason.

Of course you might argue that everyone should mind their own business. But as far as I am concerned, what you deal with in your commentaries becomes your business. Therefore, you at one point became obliged to deal with those issues. My only purpose here is to fulfill this "obligation".

This commentary was published in Radikal daily on 19.03.2011