In our modern world, one of the more intriguing spectacles is the erratic dance of central bankers as they navigate monetary policy. Their efforts often resemble a child chasing seagulls on the beach—full of energy but ultimately aimless.
Watching these financial stewards in action makes one point disturbingly evident: they seem to be improvising. Their guiding principles are nebulous, driven merely by a frantic desire to inflate the money supply and stave off the economic demons of unemployment, deflation, and plummeting asset values.
Consider how much excitement you would miss if you lived in nearly any other era. From zero interest rate policies to initiatives such as Operation Twist and quantitative easing—akin to using adhesive tape to manage diarrhea—the current landscape is uniquely dynamic.
While these monetary maneuvers may be frustrating, they also offer valuable lessons. They reveal much about the nature of our leaders, exposing them as unreliable and self-serving.
Trusting them with your finances is ill-advised; they promise you a bouquet of fresh roses but often deliver a box of rotten eggs. Now, let’s examine the latest developments from the world’s monetary policy architects.
Believing in the Efficacy of a Fraud
The Federal Reserve has recently concluded its tapering of quantitative easing, while the Bank of Japan has escalated its funding strategies. Now, the European Central Bank (ECB) finds itself in a complex situation.
Upon evaluating the ECB’s current state, it becomes apparent that while their intentions may be genuine, they lack a clear perspective. A writer from the Financial Times posits that central bankers can improve economic conditions through money printing and government bond purchases. In essence, they believe in a dubious strategy.
“Just last week, shortly after the US Federal Reserve ended its version of quantitative easing, the BoJ gave investors a stark reminder that other banks are still in easing mode.
“The Fed’s pivot away from its counterparts in Japan and the Eurozone follows years of aggressive monetary easing, and this divergence has helped weaken the euro to a new two-year low of $1.25 as of Monday.
“However, an unexpected drop in core inflation within the Eurozone—a measure that excludes the more volatile food and energy prices—has increased calls for the ECB to emulate Tokyo and boldly purchase long-term government bonds.”
Experience the Magic of Unconventional Instruments
Yesterday, the ECB’s decision-makers faced these pressures yet hesitated. They contemplated whether to emulate their peers in Washington or Tokyo. Ultimately, their resolution was neither.
“The governing council is united in its commitment to explore additional unconventional instruments within its mandate,” stated ECB President Mario Draghi. However, he failed to specify what these unconventional tools might be. Perhaps he is uncertain, or maybe “unconventional instruments” simply signifies the one course of action still available: the art of printing money and purchasing government debt.
At some moment, Draghi will have to follow through on his governing council’s pledge. Before long, it’s likely the Federal Reserve will also return to similar practices.
Sincerely,
MN Gordon
for Economic Prism
Return from Experience the Magic of Unconventional Instruments to Economic Prism
