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Central bankers were once
beings we never heard of, and rightly so, if someone’s doing a good job
you never hear about them. Back in the day all they had to do was make sure
everything balanced, i.e. there was enough gold in the bank.
No-one paid attention to
them because central banking was boring. Even Mervyn King said in a speech
over ten years ago ‘…our ambition at the Bank of England is to be
boring…in our management of the economy where our belief is that boring
is best.’
Well Mervyn, it turns out
you failed because in the last ten years you have most certainly made it into
the daily media and the history books, but ahead of you will be Ben Bernanke,
Mario Draghi and Gideo Gono and lagging slightly behind you is Zhou
Xiaochuan (PBOC) and Masaaki Shirakawa (BOJ).
According to our poll where
we asked ‘Which central banker does the most damage’ Mervyn King
was in the median average for the most damaging central banker amongst
contemporaries.
The results were as follows:
Ben Bernanke –
USA
81.63%
Mario Draghi –
Europe
7.85%
Gideon Gono –
Zimbabwe
5.02%
Sir Mervyn King –
UK
2.83%
Zhou Xiaochuan – China
1.41%
Masaaki Shirakawa –
Japan
1.26%
As central bankers they each
bear similar responsibilities, some more far-reaching than others. Each has
embarked on some measure of easing, and most continue to do so. Each
candidate in our poll has displayed an unbelievable lack of humility for the
damage which has come about from their highly leveraged systems and easy
monetary policy approaches. The majority blame forces outside of their
control for measures not working.
Our winner was, of course,
Chairman Ben Bernanke.
If you Google Bernanke you
will find reams and reams of toilet paper worth of descriptions of how this
is Bernanke’s finest hour (good luck everyone) and how he has fought
arduously for the American people during this crisis.
The biggest national
contribution in our poll came from the United States, where over 85% of whom
voted for Bernanke. It was similar story for those of us in the UK (76%) and
the majority of Eurozone voters.
It’s not that
surprising that Bernanke is perceived as the most damaging. He is the keeper
of the world’s reserve currency, yet he’s devalued it at an
increasing rate since he took over; the first two rounds of QE saw $4trillion
injected into the economy which was then exported elsewhere.
He is now in his third round
of QE, after proving that it does an incredible amount of…nothing. But
this isn’t his fault of course, and so he will continue to find radical
ways to boost the economy. Any ‘improvement’ seen in the economy
since the money printing has been short term fixes, or literally
‘fixes’. For instance employment numbers are purportedly going up
but those on food stamps are also going up.
All the while the dollar
continues to devalue, the system remains highly leveraged, the deficit
continues to multiply, US GDP continues to decline and the gold
price continues to climb.
More than any other central
banker, today and in history, the Chairman of the Federal Reserve has a
greater impact across the globe, therefore it was unsurprising that even
those outside of the US voted for Bernanke.
If the perspective of
Americans, those within the compound of Bernanke’s Emerald City, is
this negative and those in the West also think he’s also pretty
dangerous, imagine what those in the East and other emerging economies (who
were not significant poll contributors) think of him.
Well, we know. They’re
all buying gold, as we discussed in recent articles. The West are missing a
trick. Whilst we all bemoan Bernanke’s dangerous monetary policies,
governments and citizens across the emerging world are stocking up on gold,
aware that the ‘damaging’ element of Bernanke’s policies
will not be so easy to hide any more, and moving away from the US dollar.
Since the financial crisis
several countries including India, Malaysia and Russia are no longer allowing
their currencies to follow the dollar so closely as they did pre-crisis. A
study by Arvind Subramanian and Martin Kessler finds that the majority of
East Asia is now on a ‘yuan standard’, the authors expect the
yuan’s influence to reach beyond this area, taking over the dollar as a
key-currency around 2035.
The stragglers
Second in the poll was Mario
Draghi, but with just 7.85% of the votes. Gideon Gono came in with 5.02%. The
remaining three picked up just 5.5% of the votes between them.
Because of the nature of our
business we suspect many respondents are well-informed individuals who are up
on the fiat money system. If we asked the average man on the street I’m
not sure who he would say.
Unsurprisingly our one voter
in Spain voted for Draghi, this is likely because at the moment much of
Spain’s fate rests in his hands. However the rest of European countries
voted for Bernanke. I suspect (pure speculation) this is because Bernanke is
considered more of an individual responsible for the central bank, Draghi on
the other hand is new to the party and very much considered one of the
Brussels lot – a pack who collectively muddle out new rules and measures.
As an economics student,
prior to having my ‘gold-eureka’ moment, I would have most
definitely said Gideon Gono. He became something of a ‘celebrity’
when I was doing my degree, the country’s hyperinflation was widely
reported by the media, and he proved a useful example of dangerous money
printing for our lecturers.
The man who probably had a
personal printing press just to give his kids their pocket money or to pay
the cleaner, Gono is responsible for the second greatest hyperinflation in
history, which took place between 2003 and 2009.
Unlike the rest of them on
this list, he’s got the most humility of the lot and knows when to
admit he was wrong.
In a mid-term policy
statement earlier this year the RBZ’s governor discussed the parallels
between QE3 and his own policy of the last decade. He wrote:
‘The interventions
which were exactly in the mould of bail out packages and quantitative easing
measures currently instituted in the US and EU, were geared at evoking a
positive supply response and arrest further economic decline.’
He went on to admit that
rolling out the printing presses in the hope of stimulating growth does not
work, ‘despite numerous intervention measures undertaken by government
through the Reserve Bank of Zimbabwe, economic activity continued to decline
progressively…the value of the local currency declined precipitously as
speculative activities intensified. Against this background, transactions
were increasingly undertaken in foreign currencies which were more stable and
predictable.’
To give him some credit he
his indirectly responsible for introducing currency competition in the
country after suspending the Zimbabwe dollar indefinitely in 2009.
If only the fiat dollar were as disposable
Whilst the results of our
poll are no doubt slightly skewed on account of the majority of voters being
American, we can still see from UK and European votes the concern held for
Bernanke’s policies.
Draghi, I believe is
dangerous, but his hands appear to be more tied by other European central
bankers and the rules within the Eurozone. His actions will be wide reaching,
clearly, but the Euro is most likely seen more experimental than the dollar.
We hear far more debates about the end of the euro, not the end of the dollar
as we know it. Therefore, the disposable nature of Draghi’s charge may
have made him less attractive a candidate for this highly sought after
position.
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