Central Banks

What are they good good for?

Have been watching online tonight mostly shrill comments on what Bernanke has been doing today and chuckling about some of the comments ive seen.
MMT sites have not of course been that bothered (see my QE primer.. even now its still just as asset swap, just changing differennt assets compared to earlier QEs,)

What seems to be the problem here is an understanding of the function of a central bank and what they can and cant do.

I would suggest a central bank isnt anything more than a backstop to the system.  If you look back through history what it shows you is that CBs come about through the instability of the system, private banks used to issue their own currencies so imagine that today its not just when you go abroad you need to know an exchange rate you actually would need that in your own country.  Think about using a different banks ATMs now you would have to shop around to see which is the better rate.

So bring a central bank into the equation, a central banks main task is to keep the payment system between the private banks stable thats their absolute main priority its the reason we have this system.

Ok so what are we asking them to do now after all the Feds mandates are to keep the system in order and to have full employment.    How they are supposed to do both nowadays beats me.All they can do is stop the system falling apart which to give them credit I have to admit they have done the last few years. Government have completely sidestepped their responsibilties on this regard and asking the central banks to do more.    But they cant do more all they can do is keep the system stable. QE has stopped some countries going into a debt deflation spiral but thats it thats all they can do.  To ask cbs to engineer growth isnt possible yes they can mess around with interest rates.asset swaps and affect the housing market (the main mechanism that monetatry policies work) but little else they can do.

They have no more power to engineer growth than I have.

Bernanke was diplomatic as the only tool they have in the real economy is to get people to think there will be inflation, and even then that is hope not fact.    Look through the BoEs website and find the QE article all they ever mention is "expectations" thats it thats all the have.

As ive explained all Central Banks can do is keep the system from imploding so lets stop looking to them for growth when its just not possible.

Governments now you have to do your job and not use departments that are not designed for the purpose.


Andy