Tidbits from Jackson Hole

With “friends like these, who needs “enemies”:

A top economist at the Bank for International Settlements, the central bank of central banks, made a veiled criticism on Friday of Ben Bernanke‘s easy-money policies by siding with one of the Federal Reserve chairman’s chief internal critics.

Stephen G. Cecchetti, chief economist at the BIS, praised Kansas City Fed PresidentThomas Hoenig for persistently speaking his mind in warning Bernanke about the dangers of keeping interest rates near zero for so long. When he had a vote on the Fed’s policy-setting body in 2010, Hoenig always voted against keeping credit so easy.

“We at the BIS agree with you,” Cecchetti told Hoenig and an audience of top global central bankers, including Bernanke and European Central Bank President Jean-Claude Trichet, before presenting his paper on how high debt stunts economic growth.

I like the way these guys brandish about the “easy money” mantra. How come money is “easy” if the economy is deep inside the “spending hole” – about 15% below trend? And they call themselves “Central Bankers”?

They should at least read The Economist:

The slump in nominal GDP has had pernicious effects. It has raised both public and private debt burdens, since the ability of households, firms and governments to service their debt depends upon their nominal incomes and revenues. The gap between the performance of inflation and that of nominal GDP is so big that some economists, such as Scott Sumner of Bentley University, are dusting off an old idea. They are calling for central bankers to switch targets. Rather than directing monetary policy to hit inflation targets (as they have done for the past 20 years) central bankers should take aim at nominal GDP (or NGDP).

But there you are: High debt stunts growth and “easy” monetary policy foments inflation. With the logical implication being: TIGHTEN BOTH FISCAL AND MONETARY POLICY!

One thought on “Tidbits from Jackson Hole

  1. You see, the paramount goal is price stability, leave aside if that can even be measured.

    It is monetary asceticism. We must suffer to get price stability, for year, decades, or even generations. Some people suffer for God, and engage in self-flagellation. We have central bankers do it for us–or rather to us.

    And if booming developing countries boost commodity prices, then we must suffer even more.

    If Japan can suffer for 20 years, then we can suffer for 30 years. We are better than hose Japanese wimps.

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