Monday, August 13, 2012

The awesome power of central banks

Central bankers are a puzzling breed.  Adam Posen is about to leave the Bank of England's monetary policy committee. In the FT he says ' I come away from these three years on the committee very radicalised in wanting to rethink a 'lot of macro [economics] and finance'. He thinks that the central bank (BofE) should have been more active in certain areas and needs to stop so much 'teeth gnashing and garment rending about what's fiscal and monetary' . Here's another good one: 'the MPC... not be constrained by either the BoE executives saying  'we don't want to do x' or 'That's the Financial Policy Committee's territory' . 

Sir Mervyn King was renowned for saying  in May, see the Guardian: The BofE should have 'shouted from the rooftops'  its concerns about the looming disaster in the City when it was all brewing up years ago. But the BofE's latest report (see last Blog) is quite pathetic in its lack of direction and suggestions as to what might be done. Surely a good time for rooftop work Sir M? But no. No shouting across to the Treasury and the Government to come together to cross boundaries and be innovative. Seems Adam Posen is leaving frustrated. 

The power of central bankers affects all our lives, but few realise this.
The problem and the solution is largely up to central bankers to solve by open discussion with other players.  Prof Richard Werner quotes Posen in his book Princes of the Yen (p xiii) concerning the Bank of Japan's not openly admitted policies:  'I am led to the conclusion that a desire to promote structural  change in the Japanese economy is  primary motivation for the Bank [of Japan]'s  passive-aggressive acceptance of deflation'. Werner unfolds his own investigations and conclusions about central banks and their ways, in his book that was a best seller in Japan. The book (in English) reads like a disturbing detective story - amazing for a book on banking!  

This is what one reviewer says: "I think Princes of the Yen is one of the most profound and insightful analyses of central banking in general and of Japan in particular. I would recommend making this book compulsory reading for any portfolio manager, and, in fact for any student of economics. A brilliant piece of work." -- Hans Goetti, Portfolio Manager, Citigroup Asset Management, Singapore

posted by Charles Bazlinton

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