Central bankers meet in Grand Teton National Park, and get an earful. Christopher Sims, the Nobel economics laureate, said they should stop fooling around in monetary policy, because it let’s the world’s governments off the hook from stimulating growth through investment.
“It is dangerous to continue to focus the debate on what central banks can do,” Mr. [Mohamed A.] El-Erian, who is also the head of President Obama’s Global Development Council, wrote Saturday in an email. “What is needed — not only in the U.S. but even more in Europe and Japan — is a policy pivot away from excessive dependence on central banks.”
Central bankers profess to regard this pessimism as overstated. Janet L. Yellen, the Fed’s chairwoman, and the heads of other major central banks have repeatedly urged lawmakers to lend a hand — albeit with considerable diffidence.
However, they also describe their own efforts as effective even without fiscal support. They are increasingly resigned to slower growth and lower interest rates, yet they insist they still have the means — by buying government debt, for instance — to help reverse future downturns.
“Even if average interest rates remain lower than in the past,” Ms. Yellen said at the conference, “I believe monetary policy will, under most conditions, be able to respond effectively.”
I wonder if Yellen’s words will come back to haunt her like Alan Greenspan’s mistake about the self-regulatory capacity of the financial markets:
I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.
If she’s wrong about central banks’ magic wand, we could be in for a bad tumble.
from Stowe Boyd http://www.stoweboyd.com/post/149654874752
