What WILL it Take? - True Sinews

In the midst of all the recent uproar, one anonymous Twitterer seized his chance to have his Uber-Warholian, 140-characters-of-fame moment and thundered: ‘Central banks are losing control of this market!’ no doubt eliciting whatever the social media equivalent of a cry of ‘Hear! Hear!’ and an approbatory nodding of the head might be from among his followers.

In truth, that such a sentiment could even be expressed shows how far from grace we have fallen. It truly is a thing of wonder that a small, secretive panel of bureaucrats, career politicians, and largely second-string—if comfortably conformist—academics should be thought to have the duty—as well as, Saints preserve us, the means at their disposal—to ensure that no-one speculating in financial markets should ever suffer a serious loss, or that no company’s share price or bond spread should ever move in too adverse a fashion.

Though the history of central banks is nothing if not a tale of unplanned interventions, derogations from the law, behind-closed-doors horse-trading, and hazardous improvisation—often spiced up with a decent dose of personal and institutional favouritism—it has surely never previously been assumed that their role is to act as playground supervisors in quite this way.

Yes, it has been their lot firstly to keep the domestic currency convertible into the international ones of gold or US dollars and, by extension, one of trying to manage the balance of payments. Yes, they have gained their often lucrative prerogatives by dint of the assistance they could offer to their sovereign in his conduct of what we would now recognise as fiscal policy. Yes, they have been called in to act as lender of last resort when less privileged banks have pushed the heady temptations offered by fractional reserve banking too far beyond the bounds of prudence.

Later, when the breakdown of Bretton Woods and the free float of currencies absolved them of much of their traditional purpose, they eventually hit upon the expedient of trying to rein in the chronic inflationary tendencies of the modern system to which their own actions so greatly contributed, firstly by attempting to control the money supply (even if one may harbour a certain justifiable suspicion that this was no more than a convenient cover for actions taken for more discretionary and often less politically-appealing motives). As this in turn began to pose more problems than it prevented, they next began targeting some given statistical measure of the resulting price changes more directly—if indeed one can at all dignify their nebulous, shifting-horizon, tailored-to-the-moment, oft-deferred and sometimes suspended pursuit of that last objective with the name of ‘targeting’.

Be that as it may, from that latter acorn a mighty oak tree has indeed now grown.

Today, it seems everyone has decided, in some unexplained, cabbalistic fashion, that the very Gates of Paradise will be thrown open if the rate of change of CPI comes in at 2.0% per annum (though not only are the societies aiming for this ideal all very different in their make-up – and hence in the degree to which this fits into their overall economic framework – but their overseers don’t all agree on how to construct the sacred CPI number, or what it is supposed to be ‘–cum’ and what it is ‘–ex’, either).

But if the monetary settings instead trigger a glut of over-capacity; or if a burst of technological innovation and entrepreneurial genius delivers us too much stuff too cheaply; or if we’re all just too damned old to go shopping as often as we did, what’s a hubristic, Mission Creep-infected central banker to do?

If he works for the Bank of England he’ll probably just shift position shamelessly and pretend he was never really aiming for 2% in the first place, but the Court Astrologers who do take their Divine Mandate seriously will never surrender, for they know they only have to show enough commitment and their magic will soon begin to work.

Here we must confess to thinking that it would serve the common weal incomparably if Mandragora-on-the-Main were committed—if not in quite the same sense that our wannabe wizard perhaps intended.

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