(Thanks to Warren Mosler for pointing out the ECB story!)
The philosopher Thomas Hobbes once said that societies are a natural consequence of man's desire to avoid life in the "jungle state." (Hobbes defined jungle state as a constant state of war.)
In other words, human beings give up some of their freedoms to exist under some authority in order to ensure security, establish the rule of law and to avoid a constant state of warfare.
He also said that "assemblies" (like Congress) are destabilizing and ultimately fail and rule eventually goes to a single authority. (A monarchy, for example.)
In the realm of economics we have a microcosm of Hobbes' theory when it comes to the behavior and pronouncements of central banks.
In one corner we have the Federal Reserve, which has to answer to Congress.
The Fed has been under pressure to "explain" its actions recently and as a result of this scrutiny, by many members of Congress who know absolutely nothing, operationally, about the Fed, Bernanke and other Fed officials have used some pretty bizarre language. They use the term "printing money" to appease the views of the uniformed. They struggle to explain their "exit strategy" out of fear that Congressional leaders will deem it inadqueate or otherwise ineffective. They talk about deficits raising interest rates when they know full well that the Fed sets interest rates and could keep them at zero for as long as it wanted.
We see that most of the time the "Fedspeak" is about placating Congress. (Alan Greenspan was a master at saying nothing, but getting Congress to agree. He coined the term. A veritable Einstein!!)
In the other corner we have the ECB, which is totally independent and does not have to answer to any political body and certainly not to an idiot-laden assembly like Congress.
Look at how simply and eloquently Jean Claude Trichet spoke about the ECB's "exit strategy" for what he called, recent, non-conventional measures. (Quantitative easing.)
|By concentrating its non-standard policy measures on the supply of unlimited liquidity to banks, the ECB has ensured it has “an in-built exit strategy,” Trichet said in a speech in Warsaw today. “That is, when tensions in financial markets ease, banks will automatically seek less credit from the ECB.|
This will be a decisive element in ensuring a non-inflationary recovery.”
Essentially, what Trichet says is that the private sector itself will be the determinant as to when and by how much the policy is reduced. The ECB just plays a passive role and the whole thing fixes itself.
He is absolutely right!
Now, can you imagine the outcry in the U.S. Congress and in the American media if Bernanke said that? If he said, "We'll just let the banking system decide when enough is enough."
Congress would go nuts! The know-nothing media would go nuts! Dick Morris would go nuts!
Yet, it's EXACTLY what the Fed has been doing and it's EXACTLY why the Fed's balance sheet topped out six months ago.
Has there been any mention of the latter in the media? No! Only lawsuits by the news organizations against the Fed!!
And most Americans accept this because just going along with it is a lot easier than putting in the effort to learn the truth and the facts.