Friday, May 11, 2012

Mark Carney's Op-Ed: Stupidity or Propaganda?

Mark Carney: Governor of the Bank of Canada and Chairman of the Financial Stability Board. Is he demonic or just moronic? Either way, his op-ed in the Financial Times, “A cautionary tale of inflation and growth” is typical Keynesian nonsense. Carney is a central banker; nothing more nothing less. There's nothing special about Canada's financial system other than a commodities market that will weather the storm better than our US neighbour.

But I digress,

His Words | My words.

The financial crisis has shaken the world economy and prompted questions that strike at the heart of monetary economics.

Such as: if monopolies are bad, then why is our money monopolized by a secretive bank governed by Goldman Sachs alumni? Perhaps a territorial monopoly over the use of money is a bad idea? What's wrong with voluntary competition among entrepreneurs?

As governments, banks and households in advanced economies struggle to reduce debt, growth has plummeted. Weak growth is undermining efforts to repair balance sheets and causing more austerity. This vicious circle is creating problems for all economies.

Doublespeak: By pushing interest rates below their market level, my Bank of Canada has caused a massive debt load that can only be serviced by continually creating new money.

Against this backdrop, many question whether central banks are capable of supporting demand while maintaining economic stability. Some have even advocated extreme responses, such as pursuing higher inflation or abandoning existing monetary policy frameworks.

Of course, because “supporting demand” doesn't necessarily lead to higher inflation. Well, in the non-Keynesian world of reality, inflation is defined as an increase in the money supply. “Pursuing higher inflation” is precisely what central banks do. By abandoning gold, a market-chosen money, we abandoned all existing monetary frameworks that had existed hitherto in human society.

These views are misguided. Now is not the time to risk abandoning frameworks that have proved their worth through the crisis and will be essential to sustain the recovery.

We all know how ridiculous this statement is. The Keynesian frameworks have not proved their worth; they failed in the 70's and they are failing now. The reason is simple: there ain't no such thing as a free lunch.

For example, moving temporarily to a higher inflation target risks un-anchoring inflation expectations and squandering the hard-won gains of entrenched price stability. Higher and more uncertain inflation raises risk premiums and real interest rates, and worsens debt dynamics.

This is true, in spite of the language. Unfortunately what Carney doesn't address is that the current ways of measuring inflation are misleading.

Central banks are most effective when they operate with clear and stable objectives. The pursuit of temporarily higher inflation could only work if policy were anchored to a new target, such as nominal gross domestic product – total output at market prices, unadjusted for inflation.

Doublespeak: Central banks are most effective when we operate without scrutiny. An official “higher inflation” policy could only work if we are given carte blanche over the economy.

However, the uncertain rewards of such a regime shift must be weighed against the risks of giving up...........

There's more to this, but the Financial Times has asked me not to copy & paste the entire thing. Besides, Carney just goes on rambling about inflation targeting. So I will leave you with this:

Fortunately, monetary policy does not operate in a vacuum.

Fortunately, for Mark Carney. When recession is upon us Carney will be the Saviour of us all. Never mind his crony capitalist policies that got us into this mess, his Keynesian "solutions" that will prolong the pain and prevent correction. No matter what Mark Carney does he will be seen as the Great Captain of the ship and all those economic problems as foreign icebergs, ready to sink the Great Unsinkable Titanic that is the Canadian financial system.

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