2010 ) ). many conventional crisis explanations have focussed on the combined effects of venal bankers, byzantine risk models and somnambulating regulators. rajan suggested these missed the deeper cause – rising us inequality. facing this fault - line, us policymakers had chosen a policy of cheap and plentiful credit, expanded home - ownership and rising asset prices – a “ let them eat credit ” policy. bank balance sheets grew to distribute this rapidly expanding credit cake, with banks taking their own healthy slice en route. interestingly, this would not be the first time rising inequality has preceded crisis. the selfsame pattern preceded the financial crash of 1929 and the resulting great depression ( kumhoff and ranciere ( 2010 ) ). between 1920 and 1928, the income share of the top 5 % rose from little more than a quarter to more than a third. household debt relative to gdp doubled. inequalities widened and balance sheets fattened. and the upshot was the same : a huge economic contraction when the credit bubble popped. if this is a fair reading of history, then inequality may have a direct bearing on the fragility of the financial system. and while of historical interest when describing the past, its greater significance may be in highlighting risks for the future. as in the 1920s and the 2000s, rising inequality could build pressure for a credit balm to sooth the symptoms. yet temporary pain relief, through a credit boom, would risk sowing the seeds of tomorrow ’ s crisis. the good news is that central banks may, in future, be better placed to head - off these pressures by taking pre - emptive regulatory policy action. this is the essence of so - called macro - prudential policy. in the uk, it is the responsibility of the bank of england ’ s financial policy committee ( fpc ). the fpc aims to curb excess credit at source. a large and growing number of other countries are putting macro - prudential frameworks in place, and taking macro - prudential actions, to serve similar ends ( haldane ( 2014 ) ). there is a second way in which inequality could affect central bank policy objectives. based on a detailed cross - country study, imf research has found that lower income inequality delivers faster and more durable growth ( ostry et al ( 2014 ) ). moreover redistributive policies, provided they are not excessive, have benign direct growth effects – and positive

banker. there is considerable truth in that. the tools at the disposal of a central bank – interest rates, the money supply, regulation – have an impact on inequality which is, at best, indirect, inadvertent and transient. central banks can do nothing, durably, to reshape long - term structural trends in the economy, much less in broader society. yet inequality has appeared on central banks ’ radar during the course of the crisis, sometimes flashing red. that is because, at least over the shorter - term, central bank policies can and probably have reshaped patterns of inequality. some have gone further, arguing that central bank policies of extra - ordinary monetary accommodation have, by boosting asset prices and wealth, exacerbated inequalities ( saiki and frost ( 2014 ) ). in effect, central banks stand accused of having provided an extra spin to the piketty cycle. it is worth viewing this claim in context. in response to the great recession, monetary policy globally went into overdrive. interest rates fell to the floor and central bank money supply rose to the ceiling – so - called quantitative easing or qe. interest rates have never been so low, nor central bank money supply so high ( relative to money spending ), in the bank of england ’ s 320 - year history. extraordinary times heralded truly extraordinary measures. this action was taken with the best of intentions : to cushion the economy from the sharpest downturn in economic activity since the great depression. monetary policy aimed to do so by lowering borrowing costs for debtors whose income and employment prospects were squeezed and by boosting risk - taking, and hence asset prices, otherwise held back by fearful investors. it is impossible to know for sure how the economy would have performed in the absence of this monetary action. but it seems near - certain the economy would have been materially smaller, and asset prices materially lower, had this action not been taken. on the bank ’ s own estimates, the uk economy today would have been at least 6 percentage points smaller today without the combined effects of lower interest rates and large doses of qe. or, in money terms, we as a nation would have been perhaps £80 – 100 billion poorer. the income pie would have been materially smaller. it is harder still to gauge the impact of monetary policy measures on asset prices. but the facts are striking. equity prices are almost 90 % higher than in 2009 when qe commenced in