Central Banks and the Next Crisis

The article addresses the dilemma faced by major central banks, as the tools they use to help stabilize financial markets—such as intervening in the bond market and ensuring liquidity—simultaneously encourage increased debt and leverage. This raises the fragility of the financial system and heightens the risks of future crises. For example, hedge fund holdings of U.S. Treasury bonds rose to $2.4 trillion in 2025, up from $600 billion a decade earlier. While rescue tools are effective in liquidating markets, they lead to a cycle of repeated dependence, undermining the effectiveness of monetary policy and increasing the risk of new crises. Continuous interventions can boost leverage and impair long-term market stability.

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