How Central Bankers See Themselves

By: C.Jay Engel
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ECB Executive Board member Peter Praet recently gave a speech in Brussels. The underlying theme captures the convenient positioning of world central banks. They want to be seen as saviors of collapsing financial markets, but neither the cause of the instability nor the continued struggle for economic growth. From the speech:

Faced with a prolonged crisis, the ECB’s unconventional policy measures have been essential to provide additional accommodation to the economy and prevent a self-sustaining fall in inflation – and they have been a clear success. Easier credit conditions have fed into a domestic demand-led recovery that has spread across countries and sectors. The economic outlook today is now better than it has been for many years.

And yet, as he admits, the ECB has been in crisis mode since 2008. So they want appreciation for bringing forth recovery, but want the world to look elsewhere for the reason why these economies aren’t self-sustainable. He even blames the crisis in the first place, not on central bank activity from 2000-2007 but on the masses themselves! 

The first [cause of the crisis] was the bout of over-optimistic expectations which took hold in several advanced economies in the pre-crisis years, reinforced in the euro area by a renewed sense of security and economic prosperity following the launch of monetary union. Despite slowing potential growth, agents in a number of economies overestimated their future income and borrowed against it, accumulating excessive debt. In some countries this over-leveraging was centred [sic] on firms, in other countries on households and in others still on the state.

Well, one might ask where this “excessive debt” came from. Does it not come from central bank policy? What Harry Browne once noted of governments equally applies to central banks: “Government is good at one thing: It knows how to break your legs, hand you a crutch, and say, ‘See, if it weren’t for the government, you wouldn’t be able to walk.'”

One of the consequences of living in an unfree world is the aggravating subjection to condescending Official Narratives. It’s not just that our Monetary Saviors get to make money supply and interest rates decisions on our behalf, it’s also that we are being saved from our own over exuberant actions. We ruin the economy, and then we get pulled from our own fires. And the bureaucrats hardly get a thank you! 

Now, unfortunately, the end of their blessed interventionism is not on the horizon. Praet expresses with disapproval that inflation rates are still too low:

Given the softness of underlying inflation, however, we cannot yet be sufficiently confident that inflation will converge to levels consistent with our aim in a durable manner. Inflation dynamics also remain reliant on the present, very substantial degree of monetary accommodation, so they have not yet become self-sustained.

Indeed, because what we all hope for is a sustainable trend of rising costs for goods and services. This is what keeps the central bankers up at night. Central bankers are not yet satisfied with what they’ve done to us. And so they march on. What would we do without them?

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