Blog
Central Banks- Power Failure?
19th May 2008
Tonight on BBC Radio 4 (8pm) there looks like there will be an excellent hour long programme presented by Robert Peston examining whether central banks in the west have lost their power. Have a listen, there are bound to be lots of good last minute evaluative points you can get into you answers.
Robert Peston, the BBC’s multi-award-winning Business Editor, puts central bankers to the test and examines why central banks in the West appear to have lost their powers.
“How is it,” he asks, “that central bankers, who were once the supermen of the global finance economy, now look like seven-stone weaklings?”
For the last six decades central bankers from the most developed countries have managed the global economy without apparently breaking into a sweat. From splendid halls in their palatial piles, they have run the international financial system, suppressing inflation when needed and creating the stability necessary for our economies to flourish, with the aid of a powerful set of economic levers handed to them after the Second World War.
Last year these levers came off in their hands. The central banking system has suffered a chronic power outage.
Their power has failed because of a once-in-a-generation combination of devastating factors. Inflation is rising while growth is slowing, so any attempt to suppress incipient inflation risks tipping the economy into serious recession. Bankers also appear to have lost the ability to set market interest rates, their main tool against inflation, as a result of the credit crunch. And their intellectual framework for promoting stability has been battered by their less-than-successful attempts to suppress the dangerous boom in property prices.
As if these difficulties aren’t enough, the reputation these bankers once had for moral certainty is also being questioned. How now can they invite others less fortunate than themselves to follow economic models which have proved to be so wanting? Central bankers from less developed countries are, very discreetly, rubbing their hands in glee.