It truly is fascinating how central banks are allowed to remain the de-facto quasi-centralized institutions that wield the most powerful scepter to rule over economic and societal wealth in the western world (US, EU, UK, Australia, etc.).
Central bankers are not elected by the people, they are appointed – and central banks such as the Fed or the ECB are not independent of governments as they were once sought to be. They have more and more become heavily politicized actors.
Worse, European and anglophone country central banks often run behind the US Federal Reserve like little ducklings behind their mom. Due to ignorance, fear, blind trust, helplessness from being drawn into the vortex of global trade dependencies, reliance on the same economic ideology, or most likely a colorful mix of these, monetary policy in the west tends to align with each other quite a lot. The ECB for example, with small exceptions, has fallen into lockstep with the Fed since its inception almost one to one. This leads to a very small amount of people having a very large amount of power.
If such globalization of monetary policy was not enough of an issue for sometimes radically differing regional or national economies, another problem arises when seeing that the economic models that central bankers subscribe to in the first place are flawed.
Keynesian economics, which prescribe that economic recessions should be counteracted with stimulative measures (rambunctious money and debt creation) via active government intervention, remains the bedtime reading of most central bankers. Such leads not only to increased politicization and centralization, but also to the awakening of boom and bust cycles. Booms based on artificial demand (stimulus) causing an illusion of growing production capacity and savings, to which businesses adapt with expensive growth on the empty promise that such demand is organic and will continue, and busts when the whole thing painfully collapses once the central banks/government takes the shiny stimulus toy away and starts acting against self-inflicted growing money supply, -velocity and inflation.
If you think about it, such a model is in principle much closer to the notorious idea of the ‘planned economy’, than it is to the idea of ‘free markets’ the latter of which we were promised since early school days would be the natural force in western economies. Of course, eastern economies such as Japan or China are still steeply indulging in monetary stimulus to this inflation-ridden day in 2023.
The advent of a recession should really be no surprise to central bankers – their policies are among the main factors that cause them. It’s really all about simple monetary formulae … which however are simply and blissfully ignored by them.
To me, it’s still a joke how the current Fed chairman, who was calling inflation being transitory until late in 2021, and that it was caused by outside forces, has not been removed from office and remains the central actor making the monetary pendulum swing to an equally excessive degree into the other direction.
There is now a global central banker lemming dynamic that will lead the west into likely more than just a recession. The pendulum has swung so extremely that definitions of a depression could be hit again. But this of course is no problem to the keen Keynesian – a few more rounds of exuberant monetary stimulus are just a meeting away. Another boom, politicians happily taking the credit for it with their meaningless policies … and long-term inflation creeping ever higher.
