Faith in institutions is at an all time low.
Gallup polls Americans annually on different institutions and reading through the results is saddening. The percentage expressing confidence in Congress is 13% compared to 42% in the early 1970s but it’s not just politicans. Banks, police, the Supreme Court, newspapers, religion, public schools are all deeply unpopular. Surveys in the UK show a similar phenomenon.
One of the institutions that still has some respect is central banking. The Fed and others have worked hard for reputations as independent, professional and trustworthy. In turn, the public and politicians are looking to central banks for answers and to stimulate economies that need political leadership, not reckless monetary policy.
The problem is that central bankers are happy to oblige. Instead of pressing governments to fix the issues themselves, the Draghi’s, Carney’s and Bernanke’s of the world have been printing and launching experimental programs.
Instead of monitoring inflation, a simple mandate that central banks have had some success with over the past few decades, they’re being asked to monitor banks, housing, markets and the entire financial system. They being asked to look for bubbles. Some are being asked to manage reserves with central banks now investing in risky assets like stocks.
This is a grave error.
Sure, they might have a bit more success than politicians but very few central bankers and zero central banking institutions saw the crisis coming. Most of them still didn’t anticipate a recession in the days before Lehman collapsed.
“The course of the U.S. economy and the ongoing turbulence in global financial markets – have evolved broadly in line with the Bank’s expectations,” Carney’s BOC wrote days before Lehman’s collapse.
This bubble is in central bank power. One day there will be another crisis that central banks didn’t see and can’t control. When it goes bad they’ll be blamed and chastised by the same politicians who empowered them and then another institution will begin to collapse.
