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Central Banker Admits Faith In "Monetary Policy 'Safeguard'" Leads To "Even Less Stable World"

Tyler Durden's picture





 

While the idea of the interventionist suppression of short-term 'normal' volatility leading to extreme volatility scenarios is not new, hearing it explained so transparently by a current (and practicing) central banker is still somewhat shocking. As Buba's Jens Weidmann recent speech at Harvard attests, "The idea of monetary policy safeguarding stability on multiple fronts is alluring. But by giving in to that allure, we would likely end up in a world even less stable than before."

 

Excerpts from Jens Weidmann - Europe's Monetary Union

Harvard, 11/25/13 (Full speech here)

In the eyes of many politicians, economists, at least if they are central bankers, cannot have enough arms now - arms with which they are to pull all the levers to simultaneously deliver price stability, lower unemployment, supervise banks, deal with sovereign credit troubles, shape the yield curve, resolve balance sheet problems, and manage exchange rates.

 

It is probably safe to say that this change in attitude is not just due to a sudden surge in the popularity of economists and central bankers. Rather, it reflects the widespread view that central banking has come to be the only game in town. And quite a few economists seem to agree with this notion.

 

To some, the notion that the primary goal of central banks is to keep prices stable has become old-fashioned. Against the backdrop of the financial crisis, they argue that financial stability has become just as important, if not more so, than price stability.

 

...

 

By tearing down the walls between monetary, fiscal and financial policy, the freedom of central banks to achieve different ends will diminish rather than flourish. Put in economic terms: Monetary policy runs the risk of becoming subject to financial and fiscal dominance.

 

Let me explain these mechanisms a bit more in detail, starting with financial dominance.

 

The financial crisis has provided a vivid example of how financial instability can force the hand of monetary policy. When the burst of an asset bubble threatens a collapse of the financial system, the meltdown will in all likelihood have severe consequences for the real economy, with corresponding downside risks to price stability.

 

In that case, monetary policy is forced to mop up the damage after a bubble has burst. And, confronted with a financial system that is still in a fragile state, monetary policy might be reluctant to embrace policies that could aggravate financial instability.

 

...

 

Public debt and inflation are related on account of monetary policy's power to accommodate high levels of public debt. Thus, the higher public debt becomes, the greater the pressure that might be applied to monetary policy to respond accordingly.

 

Suddenly it might be fiscal policy that calls the shots - monetary policy no longer follows the objective of price stability but rather the concerns of fiscal policy. A state of fiscal dominance has been reached.

 

Technically, fiscal dominance refers to a regime where monetary policy ensures the solvency of the government. Practically, this could take the form of central banks buying government debt or keeping interest rates low for a longer period of time than it would be necessary to ensure price stability. Then, traditional roles are reversed: monetary policy stabilises real government debt while inflation is determined by the needs of fiscal policy.

 

...

 

A lender-of-last-resort role would violate this principle of self-responsibility - in that same way as Eurobonds in this setting are at odds with it. Therefore, it would aggravate, rather than alleviate, the problems besetting the euro area.

 

...

 

The idea of monetary policy safeguarding stability on multiple fronts is alluring. But by giving in to that allure, we would likely end up in a world even less stable than before. This holds true especially for the euro area, where a Eurosystem acting as a lender-of-last-resort role for governments would upend the delicate institutional balance.

 

To disentangle the euro area's fiscal and financial conundrums, we should practice the art of separation - especially with regard to the sovereign-bank doom loop. Or let me put it this way: Rather than for monetary policy to waltz with fiscal and financial policy, we need to erect walls between banks and sovereigns.

 

Of course, Taleb's somewhat seminal piece on vol suppression remains a concerning glimpse of the inevitable.

ForeignAffairs

 


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Sun, 12/01/2013 - 22:28 | Link to Comment LetThemEatRand
LetThemEatRand's picture

Interesting admission, but he misses the one key central point -- Central Banks are making bankers rich with taxpayer money, which was the plan all along.  We're just seeing the exciting climax where they take over the world while the sheeple fight over the remaining scraps.  

Sun, 12/01/2013 - 22:54 | Link to Comment Millivanilli
Millivanilli's picture

Let's see:

 

Immunity from prosecution.  Drug money laundering.    Market manipulation.  Securities fraud.  Rate rigging.  

 

Yeah, we need the fucking banksters like a god damn whole in the head.

Sun, 12/01/2013 - 23:00 | Link to Comment nmewn
nmewn's picture

Its fun watching central planners think they can control the world if only given moar levers to pull.

Pull up up a chair!...Comedy Centrals on...lol.

Sun, 12/01/2013 - 23:17 | Link to Comment NoDebt
NoDebt's picture

It's not funny.  They are being given every lever they ask for.

Mon, 12/02/2013 - 03:57 | Link to Comment rocker
rocker's picture

Really, It's is disigned to fail by the actors in Charge.  TPTB so to Speak. 

Mon, 12/02/2013 - 00:49 | Link to Comment carlin401
carlin401's picture

Long ago when you used a credit card and there was fraud the bank ate the shit, or passed the loss to the merchant via charge-backs,

But now under BIT-COIN there is no return and all sales aer final, and you can't go to court cuz cops can't bother with the loss of a 'virtual currency'

I see the IMF bankers with their new world order, but BTC is the way that banks will now do biz with no costs, and merchants can fuck the customer,

The customer under this new 'bitcoin' paradigm has no recourse
, number one argument for vendors is such promoted by btc whores that they can fuck their customer with no loss.

Welcome to the brave new world of banking where only the customer can lose.

***

No banker can go to jail, no vendor can go to jail,

Only the consumer goes to jail,

God damn fucking brilliant.

Mon, 12/02/2013 - 00:57 | Link to Comment Rock On Roger
Rock On Roger's picture

Don't buy, you can't be fucked if you aren't a customer.

 

Stack On

Sun, 12/01/2013 - 22:36 | Link to Comment ZH Snob
ZH Snob's picture

why pussyfoot around?  can't everyone see this entire central banking scheme is intended to rob the world of its wealth?  it always has been.  this is why the Jeckyl Island meeting was conducted in total secrecy.  only the guilty have the need to hide like that.

we put these thieves on pedestals as if they are somehow well intentioned guardians of the treasury.  then when we fall into yet another depression (or recession, as they like to call it nowadays) they feign surprise and steal more.  what is astoundingly ballsy is that the fed is a private corporation, and the stockholders are the very same owners of the banks they shovel all the QE to every month!

Mon, 12/02/2013 - 00:03 | Link to Comment joego1
joego1's picture

We need to bust up this bull shit.

Mon, 12/02/2013 - 05:01 | Link to Comment nuinut
nuinut's picture

What Weidmann says in this speech is that the ECB is NOT attempting to provide stability on multiple fronts, thereby fragilizing the entire system.

Got that???? He is acknowledging that it doesn't work.

He is very clear that the ECB provide stability to the value of their currency, the euro, ONLY. Everything else is not their problem, not within their mandate. Period.

Responsibility belongs with those who incur risk, and this is what the ECB is signaling, repeatedly, explicitly.

This speech is actually manna from heaven for those who wish for less central planning and an end to moral hazard, but unfortunately their biases mean they only read and hear what they expect to read and hear, which is why it is so popular to come to ZH to be spoonfed cherry-picked confirmation bias.

Mon, 12/02/2013 - 07:03 | Link to Comment mvsjcl
mvsjcl's picture

If you actually believe what you wrote then I must doubt your perceptions. The major central banks are all in lock step with each other--a row of can-can girls in tight choreography. One mis-step and the gig is up. They know this. To suggest any independence by any of these actors is disingenuous, at best.

Mon, 12/02/2013 - 07:57 | Link to Comment 29.5 hours
29.5 hours's picture

 

 

@ nuinut,

Not sure if I agree with you, but I agree that Weidmann at least reveals he is aware of the rocks surrounded the course of monetary policy.

Of course, it is easy for him to be one step above a shameless slut who is now on a campaign to assure all that there is no bubble in any market...

Former Fed Chief Greenspan Sees No Bubble in Dow 16,000

 

 

 

 

Sun, 12/01/2013 - 22:33 | Link to Comment dexter_morgan
dexter_morgan's picture

Since MMT has to be taken solely on faith, does it qualify as a religion, and therefore should it be banned from being taught in public schools? :-)

Mon, 12/02/2013 - 00:18 | Link to Comment Atomizer
Atomizer's picture

MMT bases its chummy faith on the derivatives market. When you don’t have a pot to piss in, make up a phony leveraged asset to buy more ZIRP from the primary dealers.

 

 Why ban failed Monetary Policies?

  • MMT
  • Central Planners
  • SIV
  • Sub-Prime Mortgages
  • Alan Greenspan
  • Bank of International Settlements
  • IMF
  • World Bank
  • United Nations

Not one point is taught in school today. Ignorance is bliss. Yet, when they pull off the next crisis, no one will question the merge of Global Conglomeration and lose of freedoms.  Watching a 99% tell the State.. I'm going to sue you over my civil rights will be a Kodak moment. The understanding of Hope & Change vs. Freedom and State will choom a clould over the naive.  If you don’t believe me, just drink a bottle of fresh spring capped Evian.

?

Sun, 12/01/2013 - 22:42 | Link to Comment Dr Benway
Dr Benway's picture

The further asset prices are deliberately ramped above fair market value, the further they have to fall. Pretty simple if you ask me.

Sun, 12/01/2013 - 22:59 | Link to Comment bubblemania
bubblemania's picture

Asset prices may be rising due to the decining value of fiat currency and expectations of inflationary pressures. I think that what we may be wirtnessing in the the markets is an adjustment to the perceived future declining value of certain currencies, People may not want to hold cash only because of ZIRP but because it will never be worth more than it is today. Precious metals and bonds are being manipulated by the central banks for confidence and stability. Just a theory.

Sun, 12/01/2013 - 22:55 | Link to Comment Atomizer
Atomizer's picture

Robert Welch, Founder of The John Birch Society

 

Run your own check list. 

Sun, 12/01/2013 - 23:20 | Link to Comment NoDebt
NoDebt's picture

"fiscal dominance refers to a regime where monetary policy ensures the solvency of the government. Practically, this could take the form of central banks buying government debt"

Welcome to 5 years ago, buddy.  You've been asleep for a while.  You want some coffee or something?

Mon, 12/02/2013 - 03:25 | Link to Comment Radical Marijuana
Radical Marijuana's picture

The 2011 date on the embedded article indicates merely a few years ago, but I take your point, NoDebt, about how dated those "somewhat seminal" observations seem, since, similarly, a 2013 speech from a representative of the mainstream moron school of academic banking is naturally in the same slipstream of encoded mathemagical thinking.

Of course, as you already know, NoDebt, this superficial discussion of "fiscal dominance" misses the most important point, probably on purpose, which is that what this kind of "fiscal dominance" really means is the dominance of the legalized fraud at the foundation of the whole globalized system of money made out of nothing, as debt, by private banks, which system is supervised by the Central Banks of the major countries, as the King of Fraud in each country, as integrated into a global system of under the King of Kings of Fraud, the Bank of International Settlements.

I REPEAT: ALL THIS "fiscal dominance" IS REALLY THE DOMINANCE OF FRAUD. The threats of instability are due to building everything on the basis of legalized lies, backed by legalized violence, through the biggest gangsters, the international banksters, being able to covertly take control over governments. This runaway trajectory of "fiscal dominance" is inherently tragic, since it is the triumph of controlling civilization through frauds, backed by force which can never make those frauds become true, but only aggregate and accumulate systematic and systemic risks, inside of the established systems of globalized electronic fiat money frauds, backed up by atomic bombs, and really nothing else, since the "money" MADE OUT OF NOTHING, to gamble with, now exceeds all real collateral by at least a couple orders of magnitude!

Since the regime of runaway "fiscal dominance" is really a regime of runaway financial fraud, it is only a question of time until the black swans get burned to a crisp by the dragon kings. In that context, I would AGAIN offer the insight that money is measurement backed by murder, since the debt controls depend upon the death controls.

There are no superficial solutions which are possible, since the core of this "fiscal dominance" is that government IS organized crime, which IS controlled by the best organized gang of criminals. Since the vast majority of people have been too successfully brainwashed to not understand that, and to not want to understand that, there are no plausible political resolutions to that problem on the horizon of history.

Our civilization is based on the maximum possible deceits operating its death controls, which have enabled the maximum possible frauds to operate its debt controls. Since almost nobody is able and willing to direct their attention to the central core of this problem, which is ability of violence to back up lies, so that more radical truth could be focused upon how to operate our combined money/murder systems in any better ways, we are left with nothing to be actually able to do, but to watch and wait, as the "fiscal dominance" of frauds, in the forms of legalized lies, backed by legalized violence, necessarily drives itself mad enough to self-destruct ...

The only theoretically viable solutions would have to be better organized crime, because that is the only set of solutions which actually address the reality that "fiscal dominance" IS a system of force backed frauds, where government IS organized crimes, controlled by the best organized gang of criminals. Of course, articles like the one above are like a skipping stone thrown across the deep water of those social realities, only to slow down and sink out of sight ...

The sustained "solvency" of the government is IMPOSSIBLE after it is taken over by privatized fiat money, made out of nothing, as debts. Since the whole financial system is fundamental fraudulent, but those frauds are backed by the force of government, that combined money/murder system will drive itself through ever increasing madness towards psychotic breakdowns.

Since, still even then, the vast majority of people will probably not understand that then any better than they do now, there will continue to be promoted various bullshit "solutions" which will backfire and make things get unimaginably worse. The truth is that our problems are now trillions of times worse than ever before in human history. We need radically different combined money/murder systems than the ones we have now, BUT, there is currently no coherent political ways to imagine how that is feasible ... while collapses into crazy chaos are all too easy to imagine as the necessary final failure from too much success of the "fiscal dominance" of legalized frauds, backed by the force of governments, in a vicious spiral of runaway social insanities!

Sun, 12/01/2013 - 23:40 | Link to Comment tony bonn
tony bonn's picture

just what we need - an article from the rockefeller nazis cfr.....bridges and sky scrapers have flexibility built in to make the structures safer and sounder, but the nazi fed and plutocrats remove the flexibility to protect their power, while the peons suffer the consequences....

it's time to blow the whole damned thing over, and i hope the plutocrat nazis are inside when it happens.

Sun, 12/01/2013 - 23:57 | Link to Comment Atomizer
Atomizer's picture

So how should we blow up the whole thing up without a infrastructure? Are your Venus Project rainbow pixies going to build you a free house, no job needed, no taxes to pay, no car payment to incur, free gas, and Free ObamaCare?

 

Mon, 12/02/2013 - 03:28 | Link to Comment Radical Marijuana
Radical Marijuana's picture

Well, atomizer, probably, a covert Mars Project will accompany any implementation of a Venus Project, the same as it ever was. Those realities will continue being some dynamic equilibria of organized lies, operating organized robberies, where most people approve of the best professional liars, and immaculate hypocrites, which will therefore end up betraying their supporters.

See my main comment on the allegations about how we are supposed to have some kind of Venus Project without its matching Mars Project, in my comment made previously regarding the video embedded here:

http://www.zerohedge.com/contributed/2013-11-19/money-does-not-exist

"Money does not exist"

Money exists because measurement backed by murder exists. Those travel through infinite tunnels of deceits because frauds can be enforced, but never make those frauds become true, yet still enabling those frauds to maintain their social dominance for a long, long time, although not forever ... The issue for an individual is where are they in the rise and fall of the system of the "fiscal dominance" of those force backed frauds. Being nearer the beginning is a lot nicer than to be nearer the ending!

The Venus Project correctly lists lots of possible creative alternatives, but it deliberately ignores the matching necessary Mars Project, which would be the death controls at the center of any such system of alternatives. Of course, adding the Mars Project death controls into the picture, as the keystone and lynch pin, which would be necessary to make the Venus Project actually workable, would automatically make sure that it was no longer popular. Such is the profound paradoxical way that the murder systems must operate! They are the most important real systems, but they have the history of operating through the maximum possible deceits, which includes the profound philosophical ways in which almost everyone thinks about them backwards, or not at all, since not even thinking about the most important aspect is quite consistent with how we tend to think about everything backwards, in a world where "fiscal dominance" is biggest bullies' code for the dominance of a system of legalized financial fraud, whereby the public money supply is allowed to be almost totally counterfeiting by private banks.

Mon, 12/02/2013 - 00:06 | Link to Comment WTFUD
WTFUD's picture

Yes Tony B, today's nazis seem far less compassionate than latter day nazis.

Sun, 12/01/2013 - 23:52 | Link to Comment gafgroocK
gafgroocK's picture

It's especially unstable for Bankers and a boon for rope makers

Mon, 12/02/2013 - 00:04 | Link to Comment Atomizer
Atomizer's picture

Rope is old school. /sarc

Car Remote Sound Effect

Sun, 12/01/2013 - 23:53 | Link to Comment Hopeful Skeptic
Hopeful Skeptic's picture

"The idea of monetary policy safeguarding stability on multiple fronts is alluring. But by giving in to that allure, we would likely end up in a world even less stable than before. "

Would likely?

Try "we have ended up in a world even less stable than before".

Mon, 12/02/2013 - 07:16 | Link to Comment mvsjcl
mvsjcl's picture

By design. For that instability is the very sword they use to control the govenrments.

Sun, 12/01/2013 - 23:56 | Link to Comment WTFUD
WTFUD's picture

UrinEureka

Mon, 12/02/2013 - 01:08 | Link to Comment disabledvet
disabledvet's picture

interesting missive....seems to hint at "problems with bubble blowing" without coming out and saying so however. certainly a shout out for a gold standard if ever there was one. "great reset" here we come?

Mon, 12/02/2013 - 01:48 | Link to Comment Atomizer
Atomizer's picture

They need to debunk the current religion structure. Bring aboard their new form of a GOD to pull off the new system completion. Whatever you see in the sky is a technological deception. When you see it, take a deep breath. It’s all a fucking lie.  bookmark this post.  -12/2/13

 

The new faith based currency can no longer share the same Federal Reserve motto. All part of the web of deception.. We still remain at a fork in the road. Mostly media noise as of now. When that turn is made, see above time stamped note.

Mon, 12/02/2013 - 16:54 | Link to Comment scrappy
scrappy's picture

I think you are onto something, beware grand deception and false prophets, and mesiahs in these days, BE DISCERNING ZHrs.

Mon, 12/02/2013 - 02:27 | Link to Comment U4 eee aaa
U4 eee aaa's picture

Once again they admit that when the needs of wall street clash with the needs of main street, main street gets thrown under the bus. Another wakeup call that the Fed works for the banking system and not the taxpayers that support it

Mon, 12/02/2013 - 04:02 | Link to Comment OneTinSoldier66
OneTinSoldier66's picture

It is late here. But I will try to write this the best I can in my current tired state.

 

"The Financial crisis has provided a vivid example of how financial instability can force the hand of monetary policy."

 

I can't be certain that I 100% understand what he is trying to say there. But I have a question and something to say to that.

 

Who exactly gets to decide what "financial stability" is? Is he alluding that someone(s) is trying to decide what that is, for everyone else? Without even realizing that is what he is doing? Or does he know, and just feel that he'd better be really subtle about that message? Hehe.

 

Force is a choice. It is not needed or required, unless it is to meet force that was initiated against another(or others). In other words, if someone initiates force against you to make you do something against your will, then that force should be met with force. Same goes if someone forces you to not do something that you'd like to do. Obviously, the exception is if what you'd like to do is use "force" on someone else. There used to be a TV show on long ago called, "The Equalizer". If there is no one initiating the use of force upon anyone else, then there is no need to call upon The Equalizer.

 

----------------------------------------

Some random ;-) stuff.

 

Financial Repression through the manipulation of interest rates and the bond market, printing of money, control of the amount of debt of the currency you use has on it, and control of the money supply. Is it voluntary? Or is it being forced upon you?

How about Taxation? When you pay your taxes does the IRS say, "Thank you"? And then do you say... "Sure, thank you!"?

 

What is Government? Some would say it's a necessary evil. I say that evil is not necessary just because someone else says it is. Doesn't mean that I think that there should be no form of governance whatsoever. The difference to me is, how the structure of governance and it's hierarchy is formed. I believe there will always be hierarchies. Someone has to be in charge of something. But I can say that I never really believed in, "representative democracy". Would one way to put it be, "socialized representation"? Like our socialized roads and fiat paper dollar money? I voted the first time or two I became of voting age. What a waste of time that was. Haven't voted since.

Mon, 12/02/2013 - 07:05 | Link to Comment CHX
CHX's picture

"Financial stability" to them is a non-failing banking system, where, in reality, all big and interconnected-thru-the-derivative-monster banks are already dead and bankrupt, if their a$$ets were marked to market. So they do "whatever it takes" to hold it together while they can. It's mission impossible, there are too many cracks and the pressure is getting too high, but which crack will give way first is anyone's guess. Good luck to all - we'll all need it - once the door comes off its hinges. That'll be change, for sure.

Mon, 12/02/2013 - 11:33 | Link to Comment RaceToTheBottom
RaceToTheBottom's picture

Economics is a bunch of shit.

What would happen in the real world if some physicist came out and said "gravity either pulls large things together or pushes them apart, we aren't sure". 

That is the shit that the economics profession routinely asks us to eat.

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