Richard Breslow, writing for Bloomberg, tells readers that asset bubbles no longer work as a cure for growth. In fact, it’s time for central bankers to admit that what they’re doing isn’t working. He writes:
If there was one message that resonated from the IMF meetings, it was that what we are doing isn’t working. Acknowledging that fact is every bit as important as the forecasts of dour prospects for global growth and the risks of excess leverage. You have to start somewhere. Or maybe we should think of it as, you have to stop at some point.
It’s an understandable human tendency for central bankers to worry that something bad might happen “on their watch.” But it has. Too many economies are merely limping along. And no amount of asset bubbles will halt that fact. Every time someone argues that providing less liquidity will cause pain, the
counterargument has to be, not for savers and future generations. What we can tolerate now isn’t some radical reversal of policy. That probably would be too much of a shock. And, at this point counterproductive.
What we need is a time cure. A long period of letting things heal on their own. Emergencies can be dealt with as needed. Patience is indeed a virtue and further monetary policy activism is dangerous. This is true with or without the appropriate kind and level of fiscal spending. The world has collectively reached its reversal rate. It’s presumably too late for the Fed to reconsider its October rate cut plans. But it would be a policy error to tee up anything for December and beyond. I do like the blackout periods.
If central banks can bring themselves to be less intrusive, they will unavoidably have to deal with the fallout from some of the over-leverage they have encouraged. Undoubtedly, some borrowers and lenders will experience the pain. But that’s a different task than just throwing money at the entire system. Which merely exacerbates the problem.
Read more here.