Greenspanisation of Asia..

A brilliant column by William Pesek of Bloomberg.He says what this blogger has been saying for long though from an Indian perspective.

Pesek argues that this is for Asia as well. . The markets in Asia have recovered  and gone crazy without any real reform. Why? Central  bankers busy creating Greenspan era in Asia:

What does Alan Greenspan have to do with rallies in Indian stocks, hopes for a resurgent Japan and the blind faith that China can grow at a rate of 7 percent forever? More than you’d think.

Call it the Greenspanization of Asia. The former chairman’s tenure at the Federal Reserve, from 1987 to 2006, established a new political compact of sorts, whereby governments abdicated responsibilities to unelected central bankers. The “Greenspan put” that flooded markets with cash whenever things got dicey has become the default position in Washington. In Asia today we’re seeing an even more dangerous escalation of the practice – – papering over cracks in economies that desperately need tougher, structural reforms.

He begins with India:

The optimism coursing through Mumbai tells the story. Three months ago, India was in panic mode: the rupee plunging to record lows, politicians fumbling at every turn, and talk that it would become the first BRIC (Brazil, Russia, India and China) nation to have its credit rating cut to junk. Today, stocks have hit record highs, and everyone’s buzzing about India turning the corner. Even better, bulls say, the pro-business Bharatiya Janata Party looks like a shoo-in to win a national election due by May.

Yet nothing has really changed. The current-account deficit that sparked the crisis is still a clear and present danger. It’s just been temporarily disguised by a charismatic central banker namedRaghuram Rajan, who arrived at the Reserve Bank of India on Sept. 4 and miraculously changed the subject. Let’s be honest: That’s all Rajan has really done with his interest-rate moves and soothing comments. India’s political system is still the corrupt, growth-stifling monster it was on Sept. 3. And odds are, the BJP is no more a force for change than it was in 2004, when voters rejected it.

India has gotten over the crisis too quickly for comfort and without addressing any underlying problems. And as Rajan refills the punchbowl over which central bankers are supposed to keep a tight watch, he has plenty of company.

In many posts, I have argued the same in different ways – One, two, three, four. What is amazing is people dubbing the governor as Volcker whereas it was Greenspan all the way.

Anyways, it seems RBI has company. We have BoJ, PBC doing the same thing.

Central banks cannot create real reforms:

But just as with India and Japan, the handiwork of a nimble central banker is no replacement for real reforms. If India and China, for example, are to beat the “middle-income trap” and keep gains in living standards from stalling out, their governments must act today to curb corruption, lower trade barriers, create jobs, encourage entrepreneurship, build social safety nets, promote sustainable development and, in general, reduce their own role in the economy. Japan is still competing against Asia’s rising giants with an overpriced, unproductive and shrinking workforce, not to mention an economic structure geared for success in the 1970s.

Kurodanomics can’t fix these kinds of problems. This is work for politicians and bureaucrats, not central bankers. Monetary policy can cushion the process of fixing flaws in economies, but it’s no substitute.

While the Greenspanization of America wasn’t a good thing, it unfolded in the 1990s, a time of relative stability in a very mature economy. Asia’s is happening way too early in the development cycle, and much too broadly. Evidence of governments letting central bankers do jobs they were popularly elected to do can also be found in Indonesia, Malaysia, the Philippines, South Korea, Thailand and Vietnam.

The last thing Asia needs is a slew of fresh asset bubbles. It needs government policy makers who do their jobs.

However, they can create bubbles and that is what they attempt to do.  Be cheered by financial markets and media is the mantra for most c-bankers.

A central banker who chooses to talk with a straight face highlighting challenges is given a big thumbs down..So keep creating more and more hype.. also try and be seen as Volcker in media’s eyes…as being called Greenspan is so unfashionable these days..

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