Central bankers: Heroes or villains?

Posted: June 10, 2014 in economy
Tags: , ,

FINANCIAL MARKETS have been celebrating since June 5th when the European Central Bank (ECB) announced a new battery of measures to counter low inflation in the euro area. Stockmarkets around the world have been hitting new highs. In Frankfurt the Dax index closed on Monday above 10,000 for the first time. Bond markets in southern Europe that were once under siege are now the apple of investors’ eyes. Less than two years ago, Spanish yields on 10-year benchmark bonds were above 7%. Yesterday they fell to 2.59%, lower than US Treasuries of an equivalent maturity.If nothing else, the ECB under the leadership of Mario Draghi has demonstrated once again its power to move markets. But are top central bankers heroes, as Christine Lagarde, head of the International Monetary Fund, described them a year ago for their resolve in adopting unconventional policies since the financial crisis? Or are they villains, in part responsible for the crisis itself and now pursuing policies that make another one more likely?A new research paper by Stephen King, chief economist at HSBC, sees them more as unwitting villains than as Ms Lagarde’s unlikely heroes. His critique draws upon an interesting parallel: the breakdown of Keynesian demand-management in the inflationary crisis of the 1970s. That post-war approach, he argues, engendered too much certainty on the part of workers that the government …

via Economic Crisis http://ift.tt/1pAcfiN

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