A “trade-mark” has to be defended

From The Guardian:

Nouriel Roubini, the economist dubbed “Dr Doom” for predicting the credit crunch, has sounded a stark warning about the long-term effects of relying on quantitative easing to keep crisis-hit western economies afloat.

At a lively debate in Davos, Roubini, who runs a New York-based consultancy, said central bankers risked saddling the economy with debt-burdened banks, businesses and consumers that should have been allowed to go bust.

Roubini went head to head with Adam Posen, the outspoken former member of the Bank of England’s monetary policy committee, who pushed for an extension of QE during his time in Threadneedle Street.

Posen said central bankers should be “humble” about what they can achieve but there was no evidence from the past five years that QE was sowing the seeds of a future crisis.

Interestingly, just the other day Christy Romer “warned” about central bank “humbleness”:

In this paper, we present evidence that an unduly pessimistic view of what monetary policy can accomplish has been a more important source of policy errors and poor outcomes over the history of the Federal Reserve.

At various times in the 1930s, faced with the Great Depression, Federal Reserve officials believed that the power of monetary policy to combat the downturn or stimulate recovery was minimal. In both the mid- and late 1970s, faced with high inflation, policymakers believed that monetary  policy could not reduce inflation at any reasonable cost.

And there is evidence that in the past few years, faced with high unemployment and a weak recovery, monetary policymakers believed that policy was relatively weak and potentially costly. In each episode, these beliefs led to a marked passivity in policymaking.

“Roubini also warned that the more unconventional central bankers’ approach becomes, the more they are jeopardising the inflation-targeting regime that has served the world well(!) over the past 20 years.”

“You’ve got QE2, QE3, soon you’ll have QE infinity: what’s going to happen to the regime of monetary policy? Most countries had inflation targeting; now the UK is talking about throwing it away: what’s going to be the new anchor? How are we going to anchor people’s expectations of inflation over time?”

He certainly hasn´t been reading MM blogs, or even paying attention to people like Christy Romer, Jeffrey Frankel, Mark Carney or the economists at Goldman Sachs!

HT Lars Christensen

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2 thoughts on “A “trade-mark” has to be defended

  1. I listened to a Roubini interview a few weeks ago where he said the world is moving to NGDP targeting.

    The problem isn’t that Roubini doesn’t see it coming, the problem is that NGDP targeting is very bad for his business of doom peddling.

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