Of what exactly I’m not sure; but fear (and lack of leadership) it most certainly is.
We know that monetary policy has a lasting and meaningful impact on the real economy when there is a need either to remove a constraint on the financial system (crisis of 2007-8) or to impose one (fighting inflation). Neither condition is relevant in today’s world. So why do central bankers persist on the chosen path? I cannot escape a “bull in a china shop” or a “walking on eggs” feeling every time an official, an economist or an analyst makes a statement in this regard. Fear seems to dominate, especially fear of damaging current trends – asset price inflation, increasing moral hazard, excessive focus on dividends and buybacks, increasing debt levels, demolishing returns on savings, diminishing the financial system’s earning capacity – independently of whether they are good or bad for us in the long term.
Aside from this observation, I often ask myself whether monetary policy is essentially country or region neutral: is it fair to think of the US, the Eurozone or Japan as equally fertile terrain for certain monetary policy strategies regardless of political structure, historical precedents, economic conditions or cultural biases? This fascinating and well written piece examines this question and more from the Eurozone’s perspective. It’s from a source I wasn’t aware of until introduced to me by my friend Carlo, and it gives a hint to one possible answer.
Think about it: if fear is indeed the motive behind such actions then the public officials in charge of monetary policy, once reputed to be the only “straight” ones around, would appear to have joined the rest.
And the rest is not getting any better, partly I would think because of fear. Take last week’s Duterte/Obama spat concerning an almost predictable if somewhat juvenile comment (The Economist). My immediate reaction to the US administration cancelling of the scheduled meeting was that playing the noblesse oblige card in such a context was stupid: I would have kept the meeting and confronted Duterte in the back room to make sure he got the message. More troubling though is the doubts this conduct elicits with regards to the lack of substantive action over more significant matters (to name two: Putin’s foreign policy and China’s gamesmanship in nuclear weapons – via North Korea).
Think about it: if we can’t face a long-standing ally over an insult what can we expect to achieve in wildly more dangerous situations involving leaders who think they can get away with anything?