The UK economy is at a standstill and opinions on how to get it going are divided. Should we rely on an aggressive monetary policy or is it time to borrow more and invest? Martin Wolf, chief economics commentator, and Chris Giles, economics editor, put forward their opposing views on what George Osborne’s Budget needs to deliver. Who do you think is right?
Adam Posen’s attack on the management and culture of the Bank of England may be the strongest yet, but it is by no means the first – and won’t be the last – criticism of a persistent and dismaying lack of robust governance at the UK central bank.
If a close confidant had asked Sir Mervyn King, governor of the Bank of England, a year ago which City institutions he would like to take down a peg or two, the answer might well have been: Goldman Sachs and Barclays.
It has happened more by accident and opportunism than by express design, but during the past six months, the governor has duly hit those banks where it hurts. Read more
Four years ago, Zoltan Pozsar helped change how policy makers visualise the financial world when he worked with colleagues at the New York Federal Reserve to create a gigantic wall map of shadow banking. Astonishingly, it was the first time anyone had laid out these financial flows in detailed, graphic form. And by doing that, the NY Fed researchers showed why the sector mattered – and why policy makers needed to rethink how the financial ecosystem did (or did not) work.
Now Pozsar has left the NY Fed and teamed up with Paul McCulley, the former investment luminary of Pimco (and the man who coined that phrase “shadow banking”) to tackle another issue. But this time, it is not securitisation they want to “map” – but “helicopter money”, or quantitative easing.
The macroeconomic debate is now buzzing about “political dominance” over the central banks, under which elected politicians force central bankers to take actions they would not choose to take, if left to their own devices . This is clearly what is happening in Japan, where the incoming Shinzo Abe government is not only imposing a new inflation target on the Bank of Japan (which is legitimate), but is changing the leadership of the central bank to ensure that the BoJ adopts policies compliant with the fiscal regime. This is not just political dominance, it is fiscal dominance, where monetary policy is subordinated to the decisions of those who set budgetary policy.
There have also been some early signs of political or fiscal dominance emerging elsewhere, notably in the use of the ECB balance sheet to finance cross-border financial support operations in the eurozone, and the “coupon raid” conducted by the UK Treasury on the Bank of England. Many investors have concluded that there is now an inevitable trend in place that will overthrow central bank independence throughout the developed world, allowing politicians to expand fiscal policy, while simultaneously inflating away the burden of public debt.
Last October, the UK passed the 20th anniversary of inflation targeting. There have been a couple of slight adjustments to the target – in 1997 and 2004, but since 1992 the UK has benefited from a remarkable degree of consistency in its monetary policy framework.
We have to go back to before the first world war – under the Gold Standard – to find such a long period of stability in UK monetary policy. Since then, the only other period that comes close was 1949-67, when the value of the pound was pegged at $2.80 against the dollar.
Almost a year ago to the day, the European Central Bank averted financial disaster in the eurozone by offering banks an unlimited injection of cheap three-year cash. Hundreds of banks participated in the ECB’s loan programme and by March about €1tn had been pumped into the banking system via two tranches of the ECB’s longer-term refinancing operations.
The LTRO sugar hit was deemed a success, avoiding a liquidity squeeze, temporarily lifting markets and encouraging a flurry of bond issuance in January and February. But as eurozone worries resurfaced, it was Mario Draghi’s pledge in July to do “whatever it takes” to save the euro followed by the ECB’s September offer to buy up the debt of ailing governments via so-called outright monetary transactions that changed the tone of markets.
Riad Salameh, Lebanon’s central bank governor, talks to the FT’s capital markets correspondent Robin Wigglesworth about how the unrest in Syria has affected the investor and the consumer in Lebanon. Read more
To understand Ben Bernanke, it helps to set aside the ubiquitous pictures of today’s 59-year-old: the controlled beard, the pristine shirts, the worn-down weary look. Instead, search for a snap of the freshly minted graduate who gazes from the pages of the 1975 Harvard yearbook. Unlike the other young men pictured alongside him, Mr Bernanke sports no tie and no blazer. He has a loud checked shirt, long hair and a tremendous, rebellious handlebar moustache.
The moustache may be gone, but the US Federal Reserve chairman remains a rebel – and the world is better off for it. The Financial Times has already crowned its man of the year: Mario Draghi, the European Central Bank president. But my pick for silver medal is Mr Bernanke. The fact that he is sometimes pilloried only underlines his fortitude. Read more
Is the eurozone set to be the most dynamic economy? Getty Images
Where would you find the soon-to-be most dynamic economy in the western world?
The counterintuitive answer from Mario Draghi, European Central Bank president, is none other than the emotionally battered and low-on-festive-cheer currency bloc whose name has become synonymous with crisis, recession and gloom.
Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS