central banks

James Mackintosh

The Bank of England has finally snapped. It is fed up with being constantly criticised for messing up its forward guidance on interest rates, and this week began what looks like a co-ordinated campaign to hit back.

Three of its policymakers have made speeches so far defending the policy, and their key points are simple. Here’s what they said, then some charts. 

James Mackintosh

The most profitable way to be wrong over the past five years was to bet that frantic printing of money by central banks would create inflation – so buy gold. Since the start of 2007 gold has risen at an annualised 19 per cent, a tasty return, particularly when compared to equities.

Yet, there’s been no sign of consumer price inflation, even as the US Federal Reserve explicitly targets asset price inflation (Fed jargon calls this the “portfolio channel” for monetary transmission of quantitative easing; in English that translates as rigging the market). 

James Mackintosh

The argument for gold is very simple: it is hard money at a time when every other major currency is being watered down by central bank money printing.

On that basis, Europeans should have been panic-buying gold this summer as the European Central Bank prepared its plan to hoover up peripheral country bonds (although it will try to “sterilise” the plan, taking in deposits in some form to keep net money issuance stable, even as its balance sheet expands). 

James Mackintosh

It may not be the most urgent problem facing the European Central Bank, but as Mario Draghi slaves away on his plan to save the euro – missing out on the hospitality of the US Federal Reserve’s Jackson Hole symposium – one goal must be to find a snappy name.

Central bankers are terrible at it, but central bank watchers quickly converted the dull “quantitative easing” from the Fed and Bank of England into QE and then QE2 (and there’s an outside chance of QE3 being hinted at in the US this Friday).