Are there adults in the room?

Read the European Central Bank (ECB) press statement after their monetary policy council meeting and the Q&A that followed. Not very impressed with the logic for reviewing the situation in December with a view to acting further. IF things are going along swimmingly, what is the need to buttress the QE effort with further easing in December? No one from the media asked about the downside of allowing asset prices to reach bubble proportions while there is no impact on the real economy.

So, when I saw Bloomberg Views Edit lauding Draghi for keeping an open mind on further monetary stimulus in December and chiding him and his council for not acting in October itself, I was compelled to leave the following comment on their site:

Before a particular course of action is recommended or applauded, it is elementary common sense to evaluate the effectiveness of the action taken so far. If the effects are disappointing and if they had not met expectations, human beings (who happen to believe that they are rational) have two courses of action open to them: (a) One is to abandon the action and try other alternatives or (b) do more of the same.

Central Banks have been only following the second course of action, with little to show for their repeated ‘rinse and lather’ attempts. If they do more of the same without the beneficial impacts, then it makes sense to ask whether unintended consequences and costs are piling up.

Ordinary members of the public would not know to ask these questions. An editorial desk that does not ask these questions is not doing its job. It is not helping the public or public policy-making.

Evidently, you had not read the speech by Graeme Wheeler, the Governor of the Reserve Bank of New Zealand on the world of central banking. It is still not too late. You can read it before you write the next editorial applauding the next round of QE. Many more will come, doubtless.


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