Can central bankers save the world (or is the world worth saving)?

Mr. Norman Chan, Chief Executive, Hong Kong Monetary Authority has this nice speech with a provocative title. Obviously central bankers cannot save the world but they try and try hard. But most of the time they put the world into a bigger hole. Infact the fab book Lords of Finance does suggest central bankers in the four economies could have saved us from the great depression. But it was not just them but the politicians who were reluctant to let gold standard go. At the end of the day it is the political system and the historical path  which matters. Central bankers are a part of this system and play their own bit.

He begins asking is the world worth saving?

Today, the big question is: will the unconventional monetary policies undertaken by these central banks actually work?  Put another way: can central banks save the world?

But before I try to address the question of whether central banks can save the world, I would like to digress a little by raising a deliberately provocative question: Is the World Worth Saving? 

You may think it a little odd that I should ask this question, as the answer must surely be an emphatic “Yes”.  Indeed, the commonly shared desire is that we must do whatever it takes to bring the world back to the path of economic recovery, to enable more jobs to be created and to improve people’s welfare and livelihood.  So, why do I ask this seemingly superfluous question?  Let me explain.On a number of occasions in recent years I have expressed the view that although there were many factors leading to the Global Financial Crisis and the European Debt Crisis, the root cause of our present predicament is the excessive leverage and indebtedness built up over the past two to three decades in the household, corporate and government sectors in the advanced economies. 

During this period, the indebtedness of many industrial economies, such as the US, the UK, France and Germany increased steadily from 160% or 1.6 times of GDP to over 320% of GDP.  Japan, of course, ranked the highest in this “league table” with over 450% of GDP.  This is alarming not just because the stock of debt was rising, but the speed of the increase outpaced the economic or income growth of these economies by 100% over this period.  What is even more depressing is that the aggregate public and private sector indebtedness ratios actually increased even further after the financial crisis in most advanced economies except for Germany.

….Sadly, this kind of behaviour is rather common and widespread.  It is hard to imagine a reasonable person wanting to maintain a good lifestyle now by borrowing huge amounts of money which can only be repaid by his or her children or grandchildren.  In other words, allowing or asking governments to spend beyond their means for an extended period of time is tantamount to society mortgaging the income and livelihood of our future generations.  Such action is irrational and irresponsible, but it’s happening all over the world.  No wonder some people have posed the question – if this is the kind of world we’re living in, is it really worth saving?

The thing is each time we do end up saving. There is no choice..All these years we have been living under this deadly cocktail of taking more debt and getting bailed out by central bankers.

Nice bit..

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