Central Banker Problems
The more I think about Bernanke’s press conference and the ongoing fiscal mess in Europe the more I learn to lower my expectations about central bankers. They all appear to be mere appendages of the banking system. By which I mean they see all the world’s problems through the prism of the magic of the credit markets, sovereign debt levels, and the intricacies of the international financial system. Apparently they cannot tell the difference between the idiocy of the banks, and a government deficit problem. In other words the emphasis in the phrase ‘central banker’ is decidedly on the banker.
And that is not good.
They are all treating the existence of high government debt to GDP ratios as an outcome of irresponsible policy. They thus rush to urge austerity measures to bring deficits under control, and to advocate higher interest rates to forestall the inflation that believe to be an inevitable consequence of those deficits.
This is rubbish.
Why?
Because in most cases – Greece is the exception – the current bout of sovereign debt growth is a consequence, not of bad policy, but of toxic banking. It was the private, not the public, sector that precipitated the crisis.
So they are busy curing the wrong disease. Which means, of course, that we will fall sick again. High debt levels are a symptom of bad banking. Inflation is not just around the corner. Austerity will slow economies not fix them.
Consequently, pretty much all policy, as it now is conceived, is wrong. The old adage of ‘first: do no harm’ evidently didn’t make it into the hallowed halls of central banking. In their rush to protect their banking buddies, and to stabilize the ‘system’, central bankers have deliberately overlooked, forgotten, or just excused the real culprits.
The banking system doesn’t need saving.
It needs fixing.
By ignoring this simple fact, the central bankers have become accessories to the enormous scam the banks have run. They have added to, not diminished, the moral hazard they all bemoan.
Foisting the full cost of fixing everything onto various nation’s households is a terrible dereliction of duty. They were, by and large, innocent bystanders. The creditors, shareholders, and managers of the banks should have paid the price. They didn’t. You and I did.
And when I say that the banking system needs fixing, I do not mean a tweak here and there. Or the adoption of a few cool looking back-up plans to expedite the dissolution of big banks. Those plans will be worthless the first time they are needed. They will fail under the strain of international argument over jurisdiction. And the banks will find ways to bamboozle politicians into bailing them out again.
No doubt the central bankers will aid and abet that bamboozlement too.
After all they went to the same school[s]. No?
