Global finance remains massive relative to the real economy: Increasingly severe crises are inevitable

The size of global finance remains very large relative to the global rea l economy . Th is bloated size of finance inevitably leads to severe crises: Financial shocks have large destabilising effects on the real economy; The destabilisation of the real economy exacerbates the financial shocks by worsen ing financial asset fundamentals. Such a chain of events has happened before with the subprime crisis in 2008-2009, and will be even more drastic in future crises. This raises the issue of the need to stabilise the size of finance, which will inevitably require a return to normally restrictive monetary policies.