This WSJ column($) offers a timely warning (alternate link here)
for elected officials around the world who continue to think that many of the
world’s financial woes can be solved by central bankers. Politicians
remain oblivious to the refrain heard outside of government and financial
centers that past actions of central bankers are responsible for at least a
share of our current troubles and that’s not really a good thing.
Excessive praise for central
bankers from politicians is rarely a healthy sign. The whole point of making
these guardians of monetary policy independent was so that they could be a
restraint on the inflationary tendencies of politicians.
So when the U.K. Treasury
referred to Mark Carney last week as “the outstanding central banker of
his generation” —before the Bank of Canada chief has even taken
up his new post as Governor of the Bank of England—alarm bells rang in
some quarters of the City of London.
After all, politicians used to
say similar things about the Federal Reserve’s Alan Greenspan until his
reputation collapsed along with the global economy. These days, it’s his
predecessor, Paul Volcker, who stood up to politicians as he stamped out
inflation in the 1980s, whose reputation now stands tall.
For investors, the relationship between politicians and central bankers has
never been more important amid concerns that central bankers, egged on by
politicians, are engaged in a race to the bottom in taking ever-more
aggressive money-printing actions
The “race to the
bottom” characterization is spot on. It’s so much easier for
central banks to print money and monetize the debt (this effort soon to
transform into debt cancellation, or, my favorite, debt “jubilee”)
than it is to deal with the problem of democratically elected governments
making promises and then finding out they really can’t deliver on those
promises because there just isn’t enough money.