A Benjamin Cole post
The woeful record of independent fiat-money central banks and inflation targets is one of nearly universal economic asphyxiation. Everywhere on the globe where a central bank has an IT, one sees inflation below targets, deflation and anemic growth.
Right to it:
- The Reserve Bank of Australia has an inflation target of 2% to 3%, but with inflation at 1% the RBA is below target. Growth is subpar—and this is the best of the lot.
- Thailand has a1.5% inflation band around 2.5% IT, and has no inflation and subpar growth.
- The People’s Bank of China has a 4% IT, and a 1.8% inflation rate. The nation is about at half of real growth rates when inflation was close to target.
- The ECB has a 2% IT, and is in deflation perma-gloom
- Japan has a 2% IT, and is in deflation perma-gloom.
- The Bank of England has a 2% IT, and a 0.3% inflation rate. Growth is subpar.
- Singapore has exchange-rate target on currencies that are ruled by ITs. The city-state nation most recently posted 0.3% QoQ growth and is in deflation.
Calling Inspector Clouseau
I see a pattern!
For that matter the Fed has a 2% IT on the PCE, often misperceived as a 2% ceiling on the CPI (perhaps even by FOMC officials). The Fed is below target and real growth in the U.S. microscopic. What a surprise!
Should not the macroeconomic topic of the day be, “Why are global central banks nearly universally falling below their ITs while mired in slow growth?”
At this late date, why does anyone think an IT is a good idea? Where has an IT worked (with the possible exception of the RBA’s IT-band, a slightly less worse idea than an strict IT).
The sooner fiat-money central banks kill off ITs the better. They have not worked. Is that not reason enough?
Yes, NGDPLT’s would be better.
The oddity: For decades, there has been long-winded sermons on the risks of fiat-money central banks, one reason they were made independent. The premise, even in present-day literature, is that central banks have been loose, are loose, and want to be loose, to serve sinister statist-inflationist goals and populist madmen.
The reality? Independent fiat-money central banks have universally asphyxiated commerce through tight money.
How else to explain gathering global deflation and slow growth?
When will macroeconomic orthodoxy accept the reality?