Monetary Policy: A Question to Readers.
Is it just me or is monetary policy really interesting right now?
We have a stark divide between deflation concerns and inflation fears. A debate on whether or not the green shoots are real or entirely due to technical factors such as inventory re-stocking. And we have Central Banks engaging in policy that would have been unthinkable just a year ago.
What’s more we have genuine conflict.
In Britain last year there was a very public debate between Danny Blanchflower and the Governor. The ECB is riddled with divisions. In Sweden a similar fight is developing. Merkel has attacked pretty much every central bank in the West.
This can all seem a bit academic to most people – but it’s vitally important. The decisions of Mervyn King, Ben Bernanke and Jean-Claude Trichet over the next few months will ultimately probably matter more than those of Alistair Darling, Tim Geithner and Peer Steinbruck. Remove the massive monetary stimulus too quickly and the world could fall into a deflationary spiral, leave it in place too long and we might see a rapid increase in inflation.
There is an unwritten convention that politicians don’t comment on monetary policy and now leave it to independent central banks. Consensus now is that monetary policy should be run by non-elected technocrats aiming at a government set target. Merkel has broken the convention. As an open question to my readers: how much should politicians talk about monetary policy?