The Monetary Policy Committee is running out of room to manoeuvre and actions in the US, which is effectively printing cash to kick-start spending, may be an indicator of things to come.
This month the word depression has reared its ugly head and it will fall to the world’s central banks to stop economies falling into this even worse state.
In this time of great media influence on confidence it is important the word depression is not overused as it is far deeper a condition than we are suffering.
A depression is widely accepted as being a long recession with high unemployment and low gross domestic product.
In the US depression of the 1930s national income shrunk by nearly a third, around a quarter of the population was unemployed and the crisis was only halted in the early 1940s as a result of the production required for war.
Britain also suffered a depression at that time but nowhere near as pronounced as in the US, having recovered from one in the 1920s.
More recent and more accurately comparable is our recession of the 1980s, in which growth fell by 2.9%.
The key to avoiding crises repeating themselves lies in the reform of central banks, and each time their responsibilities grow to fit the needs of the era.
In 1694 after civil war had severely affected tax revenues, the Bank of England was founded, buying government debt and reaffirming lenders’ confidence sufficiently to restart lending.
The Bank quickly became seen as best suited to the task of crisis management and it was able to “lend against sound collateral during financial crises but at higher than market rates to prevent borrowers from becoming over-reliant”, to quote Walter Bagehot, the 19th century economist.
The US did not have a central bank until 1913 despite the pressing need for one. Until then it was seen as too dangerous to put so much power in the hands of so few.
After a shaky period when it was tardy in responding to the 1930s depression the US central bank ultimately found its feet in controlling inflation. It used monetary policy to put a stop to the damaging boom and bust cycle and this became an important role of these institutions around the world.
The role of central banks is likely to evolve again. This time risk-taking will be more closely scrutinised, specifically in respect of wholesale funding.
Regulation is a valuable tool in controlling risk and the Bank will have to work closely with the government to establish rules to avert more crises in the future.