The Gold Standard | No bonfire of confusion

A former colleague of mine was frothing  at the mouth literally on reading Martin Wolf’s piece, ‘After the bonfire of the Verities’. He thought he should cancel his FT subscription on reading that. I read that piece. It was not one of Mr. Wolf’s bad or lousy pieces. He has had a few of them if not several. IT was confusing and sloppy. He could not make up his mind as to whether he should praise central bankers or bury them. He buried his criticisms, in the end.That is par for the course. The ‘establishment’ is important and ‘Establishment’ folks hang together (pun intended).

What are the specific issues with Mr. Wolf’s piece:

(1) Bonfire of ‘verities’ –  who set them on fire? Not central bankers. The crisis did that. So, the cartoon is extremely misleading.
(2) Second, whose verities are those? They were and are that of central bankers. Have they abandoned them now? We do not know. They have not told us yet that they have abandoned that.
(3) These verities had a role in causing the crisis. Does Martin Wolf criticise the central bankers and their verities for that? No.
(4) He praises the Central  bankers for saving the world from the second depression through  their innovative approaches. What innovation? Is printing money an innovation? Second, should you be praised for setting the house on fire and then trying to douse it too?
(5) Have Central Bankers developed the intellectual conviction and courage to exit these ultra-loose monetary policies on time and correctly. What is the evidence? The one evidence we have is that in 2002-2004 they pushed interest rates too low, kept them too low for too long, delayed them returning to normal, returned interest rates to normal too slowly and the world paid the price. Has Bernanke admitted these? No. He made a presentation some time ago (January 2010), to argue the opposite. TGS has blogged on it elaborately.  It is a long  post.
(6) Even now, the extension of low rate policy pledge to 2014 points to the repeat of the same behaviour.
Mr. Martin Wolf is as confused as he is misleading his readers.
The FT makes amends by publishing this article of Congressman Ron Paul:

The Fed’s response to the crisis suggests that it believes the current crisis is a problem of liquidity. In fact it is a problem of poorly allocated investments caused by improper pricing of money and credit, pricing which is distorted by the Fed’s inflationary actions.

We live in a world that seems to have abandoned the concept of savings and investment as the source of real wealth and economic growth. Financial markets clamour for more cheap money creation on the part of central banks. …….. Policy makers focus on spurring consumption, while ignoring production. The so-called capitalists have forgotten that capital cannot be created by government fiat.

Control of the world’s economy has been placed in the hands of a banking cartel, which holds great danger for all of us. True prosperity requires sound money, increased productivity, and increased savings and investment. ………….. No amount of monetary expansion can solve our current financial problems, but it can make those problems much worse.


DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.