OPINION
CENTRAL BANKS ARE BETRAYING THE CAUSE
WHY?
Central banks seem more and more inclined to reinvent the role they play in the economy. Their boldness is a result of the fact that, faced with the dramatic turn of events during the 2008 crisis, they shattered all taboos, which has failed to generate the negative impact foreseen by the economic theory. That only confirmed the lesser of the two evils principle. BY RADU CR|CIUN
http://www.business-arena.ro
A first historic step into the forbidden area was the large-scale rollout of quantitative easing (QE) by the main central banks with the intent of reigning in the 2008 economic and financial downturn. Purchasing the bonds of
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their own governments and providing limitless liquidity has prevented a complete freeze of the financial system and a global meltdown. Subsequent attempts at reversing the trend by withdrawing the printed money have been tentative at best due to central bank heads’ anxiety over the prospects of a run on the financial market and a stock market crash.
Efforts to direct expectations towards a QE reversal, such as that by the Fed chair, Ben Bernanke, in the summer of 2013, adversely impacted financial markets. So much so that the Fed had to step back and acknowledge the fact that politically independent institutions, such as the central banks, ended up loosing their independence. That was probably the decisive moment when central banks took the critical step towards losing the independence of their monetary policy. Had they done so knowingly? Probably not at the beginning. They entertained hopes that the unorthodox policy could be reversed to reach pre-crisis status quo. The proof lies in the attempts to RADU CR|CIUN reverse it which were quickly abandoned, fearing a stock market decline. As we moved on, the hostage situation central banks found themselves in went from bad to worse. Economic reliance on printed money increased dramatically in the economic crisis triggered by the recent pandemic. The 2008 quantitative easing seems like a warmup compared with the amounts of money thrown at
