Between Debt and the Devil

Adair Turner Princeton University Press, 302 pages, $29.95

The hangover from the debt crisis of 2007-08 can still be felt. Developed economies are growing sluggishly and central banks are maintaining a policy of near-zero interest rates. Debt is still a huge burden on the Western economies, and politicians are arguing about how to deal with it.

Adair Turner was one of the regulators who had to deal with the fallout from the crisis. A classic technocrat, with spells in management consulting and investment banking and as head of the Confederation of British Industry, a lobby group, he took charge of the Financial Services Authority, Britain's regulator, on Sept. 20, 2008. Only days before, Lehman Brothers had collapsed.

Turner has now reflected on the causes of a crisis that he freely admits he did not see approaching. The problem, he argues, lies in the nature of credit creation.

"Free financial markets left to themselves are bound to create credit in excessive quantities and allocate it inefficiently, generating unstable booms and busts," he writes in "Between Debt and the Devil: Money, Credit, and Fixing Global Finance."

Instead, countries should restrict private credit growth and consider allowing the central bank to create money to finance a budget deficit. Such an idea smacks of the Weimar Republic, where the policy led to hyperinflation. But Turner argues that it should be possible to prevent excessive money creation.