From the U.S. to Europe, the stewards of monetary policy are tending to the financial system with greater nimbleness,
creativity and maturity than their political counterparts or any other
The Federal Reserve just announced a new round of measures designed to keep the money flowing. Central bankers -- not to be confused with the heads of private banks that have received so much opprobrium for their role in the financial crises of the past years - are not noted for their charisma or their communication skills, but their role in shaping today's world, shadowy at times, could hardly be greater. The question is: Are they helping or harming?
Almost exactly a year ago, on the night of Nov. 30, 2011, the world's central bankers acted swiftly to stave off yet another near-collapse of the global financial system. In the weeks before, equity markets had sold off hard as the eurozone continued to simmer, but that was a mere warning. The real crisis was soaring costs of borrowing for Italy and Spain combined with a nearly complete halt of lending between banks. That too had been the critical moment in the fall of 2008 -- once banks stop lending to one another, there is only so much cash on hand. Once depleted, that's it. No checks cleared, no money at ATMs, nada. You can easily imagine what happens then.
The actions the bankers took in the dark of night were relatively simple: They told the world's banks that they would be able to go to each central bank and get funds. That may not seem like much, but in the world of finance, it was enough, and it was everything.
Over the past four years of financial crisis, central bankers worldwide have been the only true stewards of international stability. In a world where finance has supplanted the military as security's prime guarantor and threat, central bankers are like generals: They guard and they protect. Of course, also like generals, they can and certainly have failed spectacularly in the past, with unenviable consequences.
Today they are not failing. They are tending to the financial system with greater nimbleness, creativity and maturity than their political counterparts or any other societal actor.
If you read that statement and react with incredulity, sputtering "wait a minute, inept central banks have been flooding the world with money, creating a massive debt bubble, kicking the can down the road and setting us up for unbearable years of inflation and depression in the years to come," well, take a number.
Bankers may be the stewards, but they are doing a lousy job convincing people of it. Multiple excoriating critics see in today's Ben Bernanke, Mario Draghi, Mervin King and their counterparts in Japan, China, India and elsewhere the same blinkered crew who mishandled the financial system in the 1920s and helped bring on the Great Depression. Long-time Wall Street watcher Brian Wesbury summed it up well when he said ahead of yesterday's Federal Reserve announcement about continued measures to provide funds, "I wish the Fed would just go away." That was more polite than many others, who dismiss the Fed, the European banks, and indeed all bankers in words often unprintable. As Jim Rogers, the maverick, motorcycle-riding, Singapore-based commodity king once told me, "Ben Bernanke couldn't manage a corner lemonade stand let alone the U.S. financial system."
Much of the verdict will depend on the future. If over time the global system establishes a new equilibrium of lower growth and less debt in the developed world, juxtaposed with higher growth and less savings in the developing world, then the actions of today's central banks will be lauded and seen as a key element in making that transition possible. If, however, we are simply in a lull of a multi-year crisis that will get substantially worse before it gets significantly better, then today's banks will be seen not as stewards but as successors to the same crowd that abetted the Depression and mismanaged inflation in the 1970s.