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Central banks expanding their reach
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Central banks expanding their reach

October 3, 2012 by · Leave a Comment
Filed under: Opinion 

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I want to start my dialogue with this quote:

We’re at the dawn of a revolution in central banking, in which the likes of the Bank of Canada, the U.S. Federal Reserve Board, and eventually the European Central Bank (ECB) will exert more influence over the global economy than government, business or consumers.

That is really a scary thought but still a true statement and is becoming more of a reality by the day.  Central banking does sit at the apex of our economy and through their different programs and levers, that affect basically every person on the planet. 

The problem I have is that was not the deal we made in America when we were fed up with Monarchical rule from England and decide to revolt against the foreign ruler.   Now we have another entity trying to sit on the throne and because our representatives can not make the hard choices and risk being unelected, they give that new throne more power by the day.  What I mean is by us giving more and more entitlements to our people without the means to pay for them, we RELY on outside financing to fill the gap by issuing IOUs (Treasuries).  This gives them a claim and that give power and influence to exert polices choices that may not be our own.

You may counter that the Federal Reserve and other central banking institutions are part of the government but the continual claim of needed independence allows them to make decisions on their own without the influence of the people.  This can not be discounted and popular rule is not such a bad thing with the proper checks & balances.

At the end of  the day, the people you elect go along with this system so until you will take time out of your day to go something that may not have a direct effect on your daily life, our representatives with continue to think they have the support and a mandate of the people.   Democracy is not easy and need participation to work effectively.  Somewhere we have missed this crucial point.  Enjoy the rest of the article.

The Star – It’s a quiet revolution. And it’s the inevitable consequence of our currently difficult times. If not for the near-collapse of the world financial system in 2008-09, and the seemingly intractable financial crisis in Europe, central bankers would have remained the unseen players who for decades devoted themselves mostly to controlling inflation.

But in these extraordinarily troubled times, central bankers have become the rescuers of last resort. That new role has been forced on them. And while they are emboldened, they still feel a trace of reluctance in their unprecedented exertion of power and influence.

Canada’s Mark Carney, governor of the Bank of Canada, is one of the most widely esteemed of Canadians. And Carney is so well regarded abroad that British punters believe Carney to be the odds-on favourite to be poached by Britain to replace a Bank of England governor who is soon to retire.

Elsewhere, though, central bankers don’t enjoy such public and leadership-class confidence.

The ECB, even under the more enlightened leadership of its new head, Italy’s Mario Draghi, remains painfully slow to take the steps required to stimulate crippled economies in desperate need of shoring up, by strengthening both the public finances of Greece, Spain and so on, and injecting liquidity in the Continent’s reserve-poor largest banks. Yet the ECB’s haplessness, its every progressive impulse checked by a Germany that is among the world’s most fiscally-conservative countries, is proof that the revolution of more activist central banking is overdue.

The U.S. Fed, and more specifically its chairman, Ben Bernanke, are in the vanguard of this transformation. As a college professor, Bernanke had argued that central banks should act more aggressively on job creation, the neglected part of their dual mandate of keeping inflation in check and spurring job growth. Job creation was so disdained as an issue for the Fed that official mention of it in Fed policy statements didn’t appear until late in 2008, at the peak of a Wall Street meltdown that the Fed correctly assumed would prove ruinous to the wider economy for years to come.

Bernanke’s Fed has pumped more than a trillion dollars into the U.S. economy since 2008 by purchasing U.S. government debt. And early in the crisis, it formed a coalition with the Bank of Canada, the Bank of England and the Bank of Switzerland to bailed out the giant banks that run the global clearing system, ensuring that your paycheck clears and that ATMs dispense cash. At the height of the crisis, Bernanke famously said that if the central bankers didn’t promptly embrace unorthodox rescue measures, “We won’t have an economy tomorrow.”

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