Sunday, May 07, 2006

Central Banks Changing Course (Except the US Fed)

Just learned this from Doug Noland over at Prudent Bear:

[Thanks to for the photo of the Chicago Fed.]

"May 3 – Bloomberg (John Fraher):  'Otmar Issing is coming into fashion -- just as he prepares to retire as chief economist of the European Central Bank.  Issing, 70, who attends his last interest-rate meeting tomorrow, argues that analyzing the flow of money through the economy helps central bankers identify asset-price bubbles. His view is attracting greater attention as property, stock and commodity prices surge globally. "Times are changing," said Thomas Mayer, chief European economist at Deutsche Bank… and a former researcher at the IMF.  Issing’s philosophy "is gaining more support among a broader audience." In Japan and Sweden, central bankers are adopting policies echoing the ECB’s focus on the inflation threat posed by money supply and credit growth. The Bank of Japan’s monetary policy review…pledged to gauge "longer run" risks to inflation. Sweden’s central bank last month conceded it "cannot ignore" the risks posed by an increase in loans. Interest in money supply "is on the rise," said Jim O’Neill…chief global economist at Goldman Sachs… "Without it, there’s a risk of underestimating the consequences of asset prices and their impact on further monetary policy." The U.S. Federal Reserve is the most prominent holdout from Issing’s view: Chairman Ben Bernanke says that policy makers shouldn’t use rates to interfere with the markets…' "
Read Doug's whole article.


Blogger Idaho_Spud said...

Of course. Bernanke is screwed, and maybe he's begun to realize the fact.

He needs to raise interest rates to keep FCBs buying treasuries and keep the dollar from plunging.

But he also knows that will make servicing consumer and gov't debt prohibitive and send the world into a nasty recession...

To prevent this debt-servicing crunch on consumers and the gov't, he has to increase liquidity.

Unfortunately these circular things never end well... :(

8:54 PM  
Blogger ChinaLawBlog said...

A bit off topic here, but still dealing a bit with interest rates (whcih are always tied to currency rates), but I would love to hear your views on whether the U.S. would be better or worse off if the Yuan would to float and, presumably greatly appreciate.

2:55 PM  

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