Media asked the right question for once!
DW had a brief interview with an economist, discussing news that the head of India's central bank was fired by Modi. The newscaster asked two questions. First the usual fashionable question, second an EXTREMELY UNUSUAL real question about purpose.

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First and usual: Is it good when governments criticize central banks? Economist didn't really answer, just talked about Trump and Erdogan criticizing their central banks. Trump and Erdogan are official boogeymen, so anything they do must be bad.

The reality is more complicated.

In both countries the CURRENT central banks are moving away from PREVIOUS central bank policies. In USA, the bank went to ZIRP in order to make life easier for Obama. Now it's moving away from ZIRP to make life harder for Trump. This is not "independence from politics", it's party politics. The Fed, like the rest of the "independent" bureaucracy and the "independent" black-robed demons, always works for DNC.

Turkey's central bank is arguably more independent, because Erdogan was in office during the pro-ZIRP time and the anti-ZIRP time.

Trump and Erdogan are both wrong. The central banks are both right at this moment. ZIRP is always bad, uncontrolled interest rates are always good.

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Second and unique: Why should central banks be independent anyway? Economist tried to answer the question with one Kraut counterexample, the hyperinflation of the '30s.

The problem with the second answer is that the Reichsbank was not necessarily obeying the Weimar government; it was just trying to monetize the debt, which seemed to be the best response to Allied reparations.

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The BIGGEST answer is that central banks are unnecessary and bad. Governments will always print money, with or without a CB. The modern CB controls interest rates, which is bad.

When a controller does the wrong thing part of the time and the right thing part of the time, the obvious solution is to remove the controller entirely. When a car's autopilot holds the lane part of the time and forces the car to crash into a median part of the time, you're obviously better off without the autopilot. Maybe a better autopilot will be developed later on, but for now it's best to turn off the bad decider.

Labels: Constants and Variables

  ¶ 3:58 AM