There is a lot of friction between politicians and central banks. So much heat, so little light. Lawmakers are throwing their weight around.
The Bank of England alone is still ahead of the politicians. Mervyn King’s note to the UK Parliament’s Treasury select committee on Wednesday was a stern rejoinder: “We’re calling the shots” was the not-so-subtle subtext.
For the ECB and the Fed, it’s not so simple. Both are being shouted down by meddlesome politicos. Jean-Claude Trichet at the ECB must surely be fed up with the terribly modest French President Nicholas Sarkozy:
What’s happening on world markets is a rebuke for the ECB. It shows I’m right, and that Trichet shouldn’t be considered Europe’s sacred cow
And in Washington, it’s worse. Political voices are carrying plenty of weight in the press. Everyone seems to be jumping on the Fed’s wagon. As Yves Smith at Naked Capitalism says:
The discussion of the rate cut has become badly politicised and even the speeches by Fed officials this week aren’t enough to counteract all the clamour from market participants and the housing industry. They’ve managed to focus the debate on their tsuris, not the what is in the long term best interest of the economy. The Fed needs, indirectly, to discredit what they are saying.
Mr Bernanke has been bounced all over the place by Capitol Hill’s spindoctors. Christopher Dodd, the chairman of the Senate’s banking committee told us all what the Fed would be doing while Ben smiled on. Even the President is in on the act - trying to upstage the Fed chairman with his own token market rescue plan.
Chairman Bernanke, notes Smith, has little of what Greenspan had in terms of political finesse:
Greenspan wasn’t a very good Fed chairman (I am permitted to say that, since I first publicly got on his case in 2000), but he had the media eating out of his hand. He may have stumbled into his Wizard of Oz act, but the impenetrable statements and the aura he created that he alone could read the economic tea leaves was a brilliant bit of showmanship… Bernanke, by contrast, is concerned with the substance of his role, and less attentive to the theatrics. That will impair his effectiveness, particularly if he takes an unpopular course.
But, rest assured, Mr Bernanke is doing a better job. Bloomberg make the point in a lengthy assessment of the chairman’s actions through the crisis so far.
They note that Bernanke has worked closely with the Fed’s Macroeconomic and Quantitative Studies (MAQ) unit. Never heard of it? Bloomberg:
Bernanke has championed the [MAQ] team’s work since becoming Fed chairman in 2006 because he wants to sift through models, projections and anecdotes before coming to conclusions. His approach contrasts with that of predecessor Alan Greenspan, who relied more on his own reading of conditions — and as a result probably would have cut rates to insure against a recession long before the Sept. 18 Federal Open Market Committee gathering.
To labour their point, Bloomberg even have a sort of before/after photo:
Fed Chairman: Just 18 months ago, I looked like this, but then I started using graphs and data instead of tealeaves…
Of course, different though he may be, it’s likely Mr. Bernanke will still cut rates. Bernanke’s no Toto, but Greenspan’s Wizard of Oz act is still being played out.
