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El-Erian Fears The "Over-Empowerment" Of Central Bankers
Authored by Mohamed El-Erian, originally posted at Project Syndicate,
History is full of people and institutions that rose to positions of supremacy only to come crashing down. In most cases, hubris – a sense of invincibility fed by uncontested power – was their undoing. In other cases, however, both the rise and the fall stemmed more from the unwarranted expectations of those around them.
Over the last few years, the central banks of the largest advanced economies have assumed a quasi-dominant policymaking position. In 2008, they were called upon to fix financial-market dysfunction before it tipped the world into Great Depression II. In the five years since then, they have taken on greater responsibility for delivering a growing list of economic and financial outcomes.
The more responsibilities central banks have acquired, the greater the expectations for what they can achieve, especially with regard to the much-sought-after trifecta of greater financial stability, faster economic growth, and more buoyant job creation. And governments that once resented central banks’ power are now happy to have them compensate for their own economic-governance shortfalls – so much so that some legislatures seem to feel empowered to lapse repeatedly into irresponsible behavior.
Advanced-country central banks never aspired to their current position; they got there because, at every stage, the alternatives seemed to imply a worse outcome for society. Indeed, central banks’ assumption of additional responsibilities has been motivated less by a desire for greater power than by a sense of moral obligation, and most central bankers are only reluctantly embracing their new role and visibility.
With other policymaking entities sidelined by an unusual degree of domestic and regional political polarization, advanced-country central banks felt obliged to act on their greater operational autonomy and relative political independence. At every stage, their hope was to buy time for other policymakers to get their act together, only to find themselves forced to look for ways to buy even more time.
Central banks were among the first to warn that their ability to compensate for others’ inaction is neither endless nor risk-free. They acknowledged early on that they were using imperfect and untested tools. And they have repeatedly cautioned that the longer they remain in their current position, the greater the risk that their good work will be associated with mounting collateral damage and unintended consequences.
The trouble is that few outsiders seem to be listening, much less preparing to confront the eventual limits of central-bank effectiveness. As a result, they risk aggravating the potential challenges.
This is particularly true of those policymaking entities that possess much better tools for addressing advanced economies’ growth and employment problems. Rather than use the opportunity provided by central banks’ unconventional monetary policies to respond effectively, too many of them have slipped into an essentially dormant mode of inaction and denial.
In the United States, for the fifth year in a row, Congress has yet to pass a full-fledged budget, let alone dealt with the economy’s growth and employment headwinds. In the eurozone, fiscal integration and pro-growth regional initiatives have essentially stalled, as have banking initiatives that are outside the direct purview of the European Central Bank. Even Japan is a question mark, though it was a change of government that pushed the central bank to exceed (in relative terms) the Federal Reserve’s own unconventional balance-sheet operations.
Markets, too, have fallen into a state of relative complacency.
Comforted by the notion of a “central-bank put,” many investors have been willing to “look through” countries’ unbalanced economic policies, as well as the severe political polarization that now prevails in some of them. The result is financial risk-taking that exceeds what would be warranted strictly by underlying fundamentals – a phenomenon that has been turbocharged by the short-term nature of incentive structures and the lucrative market opportunities afforded until now by central banks’ assurance of generous liquidity conditions.
By contrast, non-financial companies seem to take a more nuanced approach to central banks’ role. Central banks’ mystique, enigmatic policy instruments, and virtually unconstrained access to the printing press undoubtedly captivate some. Others, particularly large corporates, appear more skeptical. Doubting the multi-year sustainability of current economic policy, they are holding back on long-term investments and, instead, opting for higher self-insurance.
Of course, all problems would quickly disappear if central banks were to succeed in delivering a durable economic recovery: sustained rapid growth, strong job creation, stable financial conditions, and more inclusive prosperity. But central banks cannot do it alone. Their inevitably imperfect measures need to be supplemented by more timely and comprehensive responses by other policymaking entities – and that, in turn, requires much more constructive national, regional, and global political paradigms.
Having been pushed into an abnormal position of policy supremacy, central banks – and those who have become dependent on their ultra-activist policymaking – would be well advised to consider what may lie ahead and what to do now to minimize related risks. Based on current trends, central banks’ reputation increasingly will be in the hands of outsiders – feuding politicians, other (less-responsive) policymaking entities, and markets that have over-estimated the monetary authorities’ power.
Pushed into an unenviable position, advanced-country central banks are risking more than their standing in society. They are also putting on the line their political independence and the hard-won credibility needed to influence private-sector behavior. It is in no one’s interest to see these critical institutions come crashing down.
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"Socialism is the philosophy of failure, the creed of ignorance, and the gospel of envy. Its inherent virtue is the equal sharing of misery.” – Winston Churchill
“The real menace of our republic is the invisible government which, like a giant octopus, sprawls over our city, state and nation. At the head a small group of banking houses generally referred to as “international bankers.” This little faction of powerful international bankers virtually run our government for their own selfish ends.” – John Hylan, N.Y.C Mayor 1922
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” - Lord Acton 1834-1902
There is another saying, although the below is only approximate, and I do not know who said it:
"The crowd all goes crazy at once, but each comes to their senses one by one."
Are "they" coming to their senses?
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” - Charles MacKay
+ 1 for finding the quotation!
AND the MSM is on their payroll so except for various websites, few are aware of implications and the BS being thrown around.
Mohammed, baby, buddy, doll face, you fear that they might become overpowered?
Come on, catch up with the reality.
They're already way the fuck past overpowered.
LMAO! Perfect response.
Advanced-country central banks never aspired to their current position; they got there because, at every stage, the alternatives seemed to imply a worse outcome for society.
lulz
Pladizow is on fire today. His posts have been great.
"Are "they" coming to their senses?"
I'm surprised you have to ask that question, having been around here as long as you have.
Does it LOOK like we're about to embark on a new, more sanity-driven journey into the future? With the current kleptocratic leadership in place?
Those that see things clearly are few and have been largely scattered to the wind. Marginalized. Derided. Mocked. But worst of all- ignored. There isn't even legitimate push-back any more. This may well be looked back upon as the greatest age of group-think in the history of mankind, led by central banks who promise the great ship known as "financialization" can never sink. Nevermind that iceberg we hit in 2008, the bilge pumps are keeping up with the gaping hole in the side of the ship just fine.
“Whoever controls the volume of money in our country is absolute master of all industry and commerce…and when you realize that the entire system is very easily controlled, one way or another, by few powerful men at the top, you will not have to be told how periods of inflation and depression originate.” – President James Garfield, 2 weeks before his assassination.
“I believe that banking institutions are more dangerous to our liberties than standing armies. “ - Thomas Jefferson
“The end of democracy... will occur when government falls into the hands of lending institutions and moneyed corporations.” - Thomas Jefferson
"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves." - Andrew Jackson, 7th US President 1836
"I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country." - Andrew Jackson
“What I was looking at was a tussle between two groups of mass-men, one large and poor, the other small and rich. As judged by the standards of a civilized society, neither of them any more meritorious or promising than the other. The object of the tussle was the material gains accruing from control of the State’s machinery. It is easier to seize wealth than to produce it; and as long as the State makes the seizure of wealth a matter of legalized privilege, so long will the squabble for that privilege go on.” - Albert Jay Nock - Memoirs Of A Superfluous Man - 1943
The path to perdition,
"Don't eat the apple."
"Ya sure boss."
"Mmmmm, that apple sure looks good."
It's not like we haven't been warned.
Churchill -- like his American "cousin" Roosevelt -- was an aristocratic asshole. He was a belligerent Bulldog for his Lords & Masters.
He was more for having the Idle Rich (in the House of Lords), than having Comfortable Poor (House of Commons). W/o the poor working for the rich, the rich would actually have to work for themselves -- and live like the other 99%. [gasp!]
Aristocracy, like modern American Capitalism are NOT meritocracies. They are NOT based on merit. The elite 1% (0.01-0.1% actually) have changed the rules, have rigged the game, and created an uneven playing field, so that the 99% are their Latter-Day Serfs. In Modern Western Capitalism, thanks to CBs, the Rich steal from the Middle-Class and the Poor. The 1% steal from the 99%. And they call it "just" and themselves as "job creators". Yeah, so was fucking Pharaoh!
In Socialism, EVERYONE is supposed to pay their fair share for the Comon Good -- even the 1%. This scares and offends the "entitled" 1% elite. Unlike the Top 1%, the Bottom 50 percentile don't have a "lifestyle". They just try to survive. With the help of their Government, they therefore augment their living from the 50-99 percentile, since the rich never pay anyway, but merely make noise to that effect in the MSM and in Congress.
The CBs banks love this, as it increases the national Debt, and amps up their Wealth-Transfer Mechanism into high gear (the 0.01% benefiting the most). But both the 0.1-1% rich and the poor would rather fight each other than their Central Banksters or the 0.01%.
Many in the 50-99% who still have wet dreams about joining the 1% one day, still ardently defend the 1%, in a classic Stockholm Syndrome phenomenon. Especially if they are in the 95-99%, from where they see their chances of "moving up" into the Top 1% as being that much better.
In the final analysis, it seems to have little to do with common-sense justice, but more with self-interest masquerading as ideological virtue.
Oh hell, yes, whatever Peterson Institute's* el Erian says, I'd believe (is he still selling those bridges in Brooklyn, BTW?).
*Peterson Institute, founded by Rockefeller lackey, Peter G. Peterson, and David Rockefeller (who ordered the murders of President Kennedy, Rev. Martin Luther King, Jr., and Sen. Bobby Kennedy), to end Medicare/Medicaid, Social Security, offshore as many American jobs as possible, and obediently follow the WTO's Financial Services Agreement.
Any questions?
...And they'll come running to you when they finally realize it's FUBAR, Mo.....
End the Fed. How's that?
news flash: maggot worried that maggots have too much power.
What do you have against the offspring of flies?
At least real maggots clear up piles of shit. These ones are responsible for creating piles of the stuff in the first place.
Chill out, Mohamed. They got this. It'll be different this time.
The problem with the last go-around was that they didn't take over the entire world's financial system and put everything under central control. A mistake they won't repeat this time.
LOL, or should I be COL?
this is not about CB effectiveness per se. Its a means to an end : flood the world in debt to save the profits of the 0.01%.
Thats the game plan. Socialise debt and Verticalise narrow band high rise profit.
Empire State of Oligarchy land with King Kong of Debt generated by them to CONTROL world through FEAR meme.
Help us fight King Kong of terror and anarchy impulse. That is sold to the people by who? By the Oligarchs.
King Kong is an awesome icon for all the ages; and he is primal beast not like white pristine beauty, typical idealised Gotham's population; his iconic victim.
Fear, fear and hear the cries of "kill the African beast".
Hey, that beast was a pure product of American Hollywood oligarchy machine fantasy, now recoloured and reedited and released to your theatre thanks to NSA networks.
But this isn't make belief any more, this is real life that outkongs king kong himself.
Once the people destroy the King Kong debt machine they'll have to go unseat those who created it for their own benefit, like a runaway beast.
Spot on analysis but need to look at the facts too (unlike El Arian I might add.) this is a EUPHORIA...the unreality of it all is plainly visible...thus the (self evident) goal is to use the media to "extend and pretend"...get enough people to buy into...walk away with all the loot. In other "if you practice sound risk management you're a loser" etc. you think Kudlow and Company care if they blow up all the banks again? "Not when you can blow up the taxpayer instead." Interestingly there are many so called "speculative" names very much worth buying into here...but I would be very wary of buying or issuing any debt instrument right now save one. Don 'to even get me started on "short selling as the best path to prosperity"...let alone "liquidity creation." Sunk capital is sunk capital...just ask the Air Force and the "F-35 people." You don't think they would rather have 100,000 drones instead right now? And those folks actually are making something. Imagine "creating a highway" that "in theory will contain traffic someday." That's the job of the economist ("show me the commerce") because that creates the confidence to lend into... Especially with rates this low.
VOLUME is just absolutely HORRENDOUS!!!! Why even open....only HFT playing ping-pong!!!
The so called market is in MAJOR TROUBLE.....EXISTENTIAL TROUBLE!
Welcome to the revolution El-Erian.
Central Bankers are destablizing the planet faster than an incoming asteroid.
Please talk to Bill about supporting your local grass roots revolutionaires.
i.e. CRASH and a depression to rival none other.
The words "moral" ("moral obligation") and "banks" seem to me mutually exclusive.
The words meant were "MOAR" (not MORAL) and "BANKS". a typo, happens to the best. fixed.
and they're conquering the world with out squadrons divisions or fleets. I'll bet they wished they'd a thought of it a lot sooner.
"I only care who prints the money"
El-Erian has a good grasp of reality. Consider the following (unhighlighted) quote from the article:
The FED (and all central banks) have a moral obligation to refuse to enable iirresponsible behavior. Yet they continue to enable, thus perverting their primary function in society.
Good intentions pave the road to hell.
I Fear The "Over-Empowerment" El-Erian, Gross and the NSA, in that order.
Paul Volcker gave Jimmy Carter the finger and raised interest rates likely costing Carter his re-election. By providing the tough love and proper discipline the market needs from the controlling powers, Volcker created huge credibility for The Federal Reserve. This credibility was used by Greenspan and Bernanke to goose the country's GDP as it destroyed the country's balance sheet. Greenspan and Bernanke used the Federal Reserve to support an irresponsible legislative and executive branch. Mohammed's statement: "Advanced-country central banks never aspired to their current position; they got there because, at every stage, the alternatives seemed to imply a worse outcome for society is a nice story for his crony crimminals (inside info and other), but is just wrong, because the Fed is the INTIATOR or FIRST CAUSE creating this crony capitalistic system that Vladimir Ilyich Lenin would admire.
Would Obama be president today without Bernanke's QE2 - QEeva?
Greenspan did the same to Bush...but there was no monetary inflation...which of course Greenspan would have had to know since he was in charge of the Fed. Instead there was "too much wealth creation by those people"? We'll never know. Once he inverted that yield curve and "couldn't explain it" the die was cast. "Target Wall Street." Sure...QE has "saved the banks"...where is the recovery? By "slashing budgets and cutting spending to zero"? Or is it "maximum Keynes on White Elephants"? still seems very disjointed and confusing to me. What are the policy goals again?
Policy goals are well defined. Hank Paulson and Bernanke asked for TARP to bail-out homeowners, but used the money to fund the banks. Bernanke and Fed continues to fund the financial institutions who are the same irresponsible people that are responsible for creating this mess.
I assume you are a vet, so please accept my thanks for your sacrifice. Anybody that serves this country has my respect, but our leaders SUCK.
I had a friend killed in Vietnam. I always wanted to believe that his death was a sacrifice for the good of the country. Today, I wonder if the world would be that different if Wilson had kept his campaign promise and never sent the doughboys to Europe. I have no idea how America's greatest men who volunteer for the military can risk their life for this crony system they are protecting. Very few of the sons of the men Bernanke's free money helps are risking their lives for this country.
Great comment, hear, hear.
This commentary would have been more appropriate with the Rolling Stones 'Sympathy for the Devil' playing in the background.
Heh, I had to put that on and reread this
"Pushed into an unenviable position, advanced-country central banks are risking more than their standing in society. They are also putting on the line their political independence and the hard-won credibility needed to influence private-sector behavior. It is in no one’s interest to see these critical institutions come crashing down." <my italics>
Basically disagree with every fiber of my being and some fibers I have rented.
Bondsman El Erian is obliged to couch his criticisms in educated waffle, lest he bites the hand that feeds him and his.
His premis seems to rest on the idea that central banks feel a sense of moral responsibility, and reluctantly get dragged into profligate loss-making fiscal matters.
Balderdash. Central banks exist primarily for their private shareholders and behave like robber barons, then and now. They may rationalise their failed policies, but in the end, they are self-serving entities that have no place in a democratic republic, except one run by fools serving fools.
End the Fed.
A phucking fed apologist turns up on zh and nobody calls BULLSHIT!? Apologies if someone has, I got interrupted. My son came by to tell me that the Braves are moving to Marietta and show me video of Judge Napolitano with some fuckface on fox news talking about the new law which makes it a felony to practice free speech in the presence of secret service. Shit. Another rabbit hole.
I just called bul$hit on it, as others did earlier. Glad you showed up to say the same.
Thanks, I think. You commented at 19:50 (GMT-5) and so did I. You replied at 19:50 (GMT-5). Can anyone read and reply to a comment in the same minute? Could be a glitch, 'cos I generally agree with you. I make my livin' payin' attention to details, and I'm payin' attention right now.
Mon, 11/11/2013 - 19:04
RTTB, what is that thingy over at the right margin? What are you trying to tell me? I think I'm smart, but I'm actually pretty stupid sometimes.
I was just shamelessly trolling for a compliment at beating your comment by posting the time of my post. I sometimes have difficulty getting my point across.... And alcohol only exasperates the problem, or challenge....
It's cool. I too, search for confirmation of my bias.
Oh yeah...Sympathy for the Devil:
https://www.youtube.com/watch?v=4BGRHwj6cE8
F the Fed, and its private shareholders. End the Fed.
Captain Obvious hits another home run! Investors should consider what may lie ahead and minimize risks? QE infinity would be alright if it brought sustained rapid growth, strong job creation, stable financial conditions, and more inclusive prosperity? As every woman I've ever been with can confirm, there is tremendous value in always being vague, but Jebus, you'd think this dude was a fucking wizard with his essentially guest host status on CNBC.