Politicians Put Eggs in Central Bank Basket - Big Mistake

This WSJ column($) offers a timely warning (alternate link here) for elected officials around the world who continue to think that many of the world’s financial woes can be solved by central bankers. Politicians remain oblivious to the refrain heard outside of government and financial centers that past actions of central bankers are responsible for at least a share of our current troubles and that’s not really a good thing. 

Excessive praise for central bankers from politicians is rarely a healthy sign. The whole point of making these guardians of monetary policy independent was so that they could be a restraint on the inflationary tendencies of politicians.

So when the U.K. Treasury referred to Mark Carney last week as “the outstanding central banker of his generation” —before the Bank of Canada chief has even taken up his new post as Governor of the Bank of England—alarm bells rang in some quarters of the City of London.

After all, politicians used to say similar things about the Federal Reserve’s Alan Greenspan until his reputation collapsed along with the global economy. These days, it’s his predecessor, Paul Volcker, who stood up to politicians as he stamped out inflation in the 1980s, whose reputation now stands tall.

For investors, the relationship between politicians and central bankers has never been more important amid concerns that central bankers, egged on by politicians, are engaged in a race to the bottom in taking ever-more aggressive money-printing actions

The “race to the bottom” characterization is spot on. It’s so much easier for central banks to print money and monetize the debt (this effort soon to transform into debt cancellation, or, my favorite, debt “jubilee”) than it is to deal with the problem of democratically elected governments making promises and then finding out they really can’t deliver on those promises because there just isn’t enough money.

4 Responses to Politicians Put Eggs in Central Bank Basket - Big Mistake

  1. Steve White December 18, 2012 at 9:56 AM #

    Thanks for the alternate link! Interesting story…

    I think the bit about praising the incoming banker before he even does anything is just typical hot air from politicians who spend far too much time praising each other and giving out awards to themselves and precious little time doing anything meaningful, such as resigning!

    It’s like Obama getting a Nobel Peace Prize before he’s even inaugurated. We lowly citizens see that as absurd while politicians just see it as harmless puffery. Same for Greenspan’s nauseating medal (shown in your wonderful picture!).

    Volcker is mentioned because he was truly exceptional. He was vilified and fired and is an example of what happens when you don’t give the public what they think they want. He is not the norm. Politicians do NOT want central bankers being independent. How can they be independent when they are appointed by the politicians in the first place?

    I worked in the state Senate with my sibling who was a state senator. It was nauseating how all the members fawn all over each other all the time in public even though they HATE each other and spew vitriol in private. “The esteemed Senator from XYZ” “The Gentlewoman from ABC” and so on is just part of the endless lies that politicians learn to tell if they are going to have any chance of getting elected.

    Your debt jubilee thoughts are intriguing to me. Eventually, something has to happen to all this debt. Are you thinking of it for PRIVATE individuals or something for public debt? All of the “jubilee” articles I see online are about private debt forgiveness. That definitely seems like a possibility given the way our government encourages debt and discourages savings. There is no end to the ridiculous BS that will be tried to “extend and pretend.”

    But, that doesn’t seem to answer the question of what to do about public debt other than to just print money and inflate it away… Am i missing something?

    • Tim December 18, 2012 at 2:39 PM #

      I’ve been reading about a debt “jubilee” in the public sector for a few months now.

    • Frank H December 19, 2012 at 3:22 AM #

      I you want a debt jubilee, read up on the Chicago plan: it is our solution out of this mess, and would set the financial world on a sound future footing. I did an interview on it:,but please read the IMF paper, and other articles written by prominent Chicago economists of the time.


      Of course, along with the Chicago plan, we need to make government borrowing illegal,and make it impossible for the government to print money. In the future, if you want government services, then you have to pay for them from direct taxation.

      • Steve White December 19, 2012 at 8:20 AM #

        Thanks for the video link. Very interesting…

        Although I have no debt at all, I still like your plan because it would fix all the problems with our current system.

        I suspect it has no chance of ever being implemented by our narcissistic, so-called leaders whose egos do not let them believe in a true market economy.

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