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ECB - a body that is deaf to their pleas and
constitutionally obliged to ignore the welfare of their particular societies
The Bank of England may have averted a catastrophe.
If ever there was a time when this country needed its own monetary authorities this is the moment.
Those nations with fossilised or timid central banks clinging to outdated ideologies are not so lucky.
Even less lucky are those such as Spain and Ireland that have surrendered policy to a body that is deaf to their pleas and constitutionally obliged to ignore the welfare of their particular societies.
They face crucifixion.
Ambrose Evans-Pritchard, Daily Telegraph, 08 Mar 2009
Spain's agony is already well advanced. Industrial output has fallen 24pc. Some 352,000 people have lost their jobs in two months.
BBVA expects unemployment to reach 20pc next year, touching 4.5m.
Premier Jose Luis Zapatero can do nothing as long as Spain remains in monetary union.
Yes, it is dangerous for the Bank of England to buy up a third of all long-dated gilts. But it would be even more dangerous to allow deflation to run its course in an economy where debt levels have reached such extremes. Debt and deflation are a deadly mix.
The errors that led to our current predicament are well-known. A small army of economists – Austrians, Monetarists, and Keynesians – warned that central banks were playing with fire by fixing the price of credit too low and ignoring asset bubbles. The $6.7 trillion in reserve accumulation by China, Japan, and the petro-powers drove bond yields too low for safety.
But I digress. We are now faced with the post-debt wreckage. The task at hand is to hold our societies together as best we can. One dreads to think what would have happened if the Hoover-Brüning nostalgics had succeeded in blocking every remedy.
The ECB has cut rates to 1.5pc, but since they need to be minus 1pc on the Taylor Rule, this leaves the breach as wide as ever. The Bundesbank is blocking any serious move towards quantitative easing.
Given that Germany's economy is imploding (Deutsche Bank sees 5pc contraction this year) one wonders if the Bundesbank would be less hawkish if the D-mark still existed.
Even their hard-money brothers at Switzerland's SNB are cash printers these days.