Posts Tagged ‘Bank of Japan’

A Central Bank of the World (As if Central Banking Errors Aren’t Already Global Enough)

Tuesday, October 28th, 2008

An October 25, 2008 Newsweek article by Jeffrey E. Garten is titled, “We Need a Bank Of the World.”

What I need is some sort of keystroke to represent spluttering astonishment.  There can only be a few things on the list of what we need less than a World Central Bank (a planet busting asteroid might be a tie— other than that I can’t think of much).

Central Banks have been error making machines.  They never have and never will accomplish anything else, because they’ve been given (or have taken) an impossible task— money and credit expansion in a fiat currency system along with (rather laughably), maintaining economic stability.

A Global Central Bank’s most likely accomplishment would be to ensure that any nation that ever has second thoughts and wants to leave the fiat currency and credit creation rat race, is instead trapped.  From there the World Central Bank can move on to booming and busting us all, with no escape in any global nook or cranny, until every person, place and thing in the world is exhausted.

Mostly lost in the recent credit follies with it’s nexus in the credit creation and credit collapse from the Federal Reserve Bank of the United States (which admittedly has been so egregious it needs the invention of another computer short cut key— maybe one that rolls all the world’s expletives into some kind of text and graphics ball), are the multi-decade errors of the Bank of Japan.

Financial analysts are casual about the ripples from the Yen Carry Trade (borrowing in Yen at low interest to invest, or speculate, in vehicles under a higher interest currency), as if it’s just something that randomly happened.  But the Yen Carry Trade has been classic market disruption and unintended consequences from central bank force feeding of credit into a system that would desperately prefer to puke it back.  Instead of looking for opportunities for stable production, Japanese money and credit has been stampeding all over the globe for years, looking for arbitrage opportunities.

Japan’s Central Bank started with a real estate bubble, moved on to the “zombification” of it’s supposedly private sector banking, and then, with rates near (or even at) zero, has now clearly enabled a speculative emphasis in global finance and the era of the hedge fund, the last chapter of which is being written now (and looks to deserve a pretty poor review).

The main contention of Garten’s World Central Bank article is that “the Fed no longer has the capability to lead singlehandedly”, a contention that would be perfectly true if he would have substituted the words “never had” for “no longer has”— it’s the exact same capability that a Global Central Bank would continue the tradition of never having.

“To give it legitimacy” Garten continues, “a global central bank would have to be governed in light of political realities.” Well that should be easy— fortunately, political realities are always simple and helpful.  (As Garten is able to demonstrate concretely in his nimble salvation of the world in a thousand words, even while reassuring us that we won’t have to give up the political realities that have been serving us so well.)

It makes sense though that we’ll never have to give up our cherished political realities if Garten has his way— a World Central Bank is a logical step in our main political reality— the steady march of centralized decision making to higher and higher levels, so that we guarantee that decisions are aggregated above the level at which it’s possible for any individual or structured group to make them.  No doubt someday we’ll have an international organization to tell your local T-Ball team what position your 5 year old should play, and at that point, all our dreams will come true (except maybe for a few confused kids and cancelled T-Ball leagues.)

It appears that in the United States we’re comfortably adjusting our expectations as economic hybridization ratchets to a level where we can no longer pretend that “fascist” is just an insult to be sprayed around by radicals.  But at least we could refrain from demanding that everyone else must wade around with us in the same knee deep glue.  Let’s let other countries make, or perhaps even not make, their own mistakes.

I’d suggest that any nation interested in financial stability and fair opportunity should ignore this call to global credit creation arms, eliminate its own central bank, and raise banking reserve requirements to a sane level as a simple fixed matter of law.

By Les Lafave 

Banking Reform – themaestrosrep.org