“Expansive money supply in The financial crisis: necessity and risks”

In the past few years financial institutions have suffered great losses after the beginning of the financial crisis in 2007. As a result of those losses, a lack of confidence in the interbank market has occurred. This implies that the refinancing between financial institutions was nearly stopped. The consequence was that the cost of refinancing and the interest rate for mortgages increased and thus the mortgage institutions pursue a restricted policy of lending mortgages. To maintain the interbank trading in order to prevent the global finance market from freezing, the central banks have increased the money supply. Some scientists stated that the central banks have literally flooded the markets with money. In my opinion the increase of money supply was necessary to loosen the credit crunch and to sustain the whole system.