A very strange interview with a BIS official

Stephen Kirchner sent me to a post by Antonio Fatás, criticizing the BIS view of monetary policy:

You probably need to read the whole interview to understand what I mean but here is a summary of the new BIS theory of inflation:

1. Inflation is a global phenomenon, not a national one. Monetary policy has very little influence on inflation, demographics and globalization are much more relevant factors.

2. The idea that monetary policy affects demand and possibly inflation is a “short-term” story that is too simple to understand the recent behavior of inflation.

3. Deflation is not that bad. The Great Depression is a special historical event that holds no lessons for what we have witnessed during the Great Recession.

4. While central banks are powerless at controlling domestic inflation, they are very powerful at distorting interest rates and rates of returns for long periods of time (decades).

5. Central banks have a problem when inflation is the only goal (they end up creating distortions in financial markets).

6. Monetary policy is a cause of all China’s problems (he admits that there are other causes as well).

In summary, central banks are evil. Their only goal is to control inflation but they cannot really control it and because of their superpowers to distort all interest rates they only end up causing volatility and crises.

What I found most bizarre was one of the questions, which didn’t seem to faze the BIS official at all:

Inflation is only 0.2% in Europe and 0.5% in the US, although the central banks are doing everything in their power to drive it up to 2%. What’s going wrong?

[Hyun Song Shin responds] Inflation is not only a domestic and short-term phenomenon – the kind of phenomenon monetary policy can influence. Inflation also depends on global and long-term factors. The most important story is global. Ultimately, inflation is falling nearly everywhere in the world.

This interview, where the reporter insisted that central banks like the Fed are doing everything in their power to raise inflation, took place on December 27, about a week after the Fed decided to raise interest rates.   I feel like I’m living in some sort of alternate reality where everyone has forgotten how to think.

I sometimes get this from commenters as well, so it’s not just one crazy reporter.  People have brains.  Use them.

HT:  Marcus Nunes



26 Responses to “A very strange interview with a BIS official”

  1. Gravatar of Gary Anderson Gary Anderson
    10. January 2016 at 18:27

    Totalitarianism through negative rates and cashlessness could be the goal of the BIS. Interesting that God destroyed the Tower of Babel. Just like Gog and Magog in the Square Mile, God has hinted about how things are in the world and few take heed.

    The Tower of Basel has its own police force and appears to be a sovereign state within a state.

    Scott, I have an article for you putting MM in a pretty favorable light compared to what else is out there. I have a nice story about the original MM Boys, Mantle and Maris included in the article.


  2. Gravatar of E. Harding E. Harding
    10. January 2016 at 19:11

    Weird stuff. Interesting how Brasil has a problem keeping inflation below 10% in such circumstances and Belarus never fails to keep inflation above 5% and Russia above 3%, despite poor demographic situations in these latter two.

  3. Gravatar of Benoit Essiambre Benoit Essiambre
    10. January 2016 at 19:25


  4. Gravatar of Ray Lopez Ray Lopez
    10. January 2016 at 19:58

    What is your point, Sumner? You’re mystery writing again, implying you have a grand solution. What is it? Give us a hint. Citing your own blog and saying: ‘It’s in there’ is a cop-out. What is your cure? Print more money? Target NGDP and keep printing until we hit it? Pied Piper pipes on…

  5. Gravatar of Major.Freedom Major.Freedom
    10. January 2016 at 20:07

    “This interview, where the reporter insisted that central banks like the Fed are doing everything in their power to raise inflation, took place on December 27, about a week after the Fed decided to raise interest rates.”

    But the Fed promises 2%. That should be enough isn’t it? If the Fed promises it, why aren’t people spending more to raise prices by 2%?

    It is almost as if you are saying what the Fed says is irrelevant, and that the changes to the instrument are definitive.

  6. Gravatar of E. Harding E. Harding
    10. January 2016 at 20:07

    By God. Ray just left this comment on the Marginal Counterrevolution:

    What are your dates for the quotes? I don’t believe you, you’re not credible Harding.

    Christ, what an ass. Certainly isn’t behaving like someone with a 120 IQ.

  7. Gravatar of Chuck Chuck
    11. January 2016 at 01:11

    “central banks are evil”


  8. Gravatar of Brian Donohue Brian Donohue
    11. January 2016 at 05:20

    It seems obvious to me that some kind of Chinese devaluation makes sense here, which is what the markets are sorting out. Europe needs to keep QEing and the Fed needs to at least stand pat for a while- no more hikes.

  9. Gravatar of Benjamin Cole Benjamin Cole
    11. January 2016 at 05:47

    The BIS interview makes sense, in this context: when inflation was in double digits, the BIS-types wanted lower inflation. When inflation was in moderate single-digits, the BIS wanted lower inflation. When inflation was in low single digits, the BIS-central bankers wanted it lower. When inflation hit zero, the BIS calls for deflation.

    There may be some truth in the assertion of the BIS economist that gushers of supply in almost every product or commodity are lowering rates of inflation. The supply side is fine, never better.

    And it is also true that the world needs gushers of demand.

    Print more money, print more money, print more money, print money until we see Full Tilt Boogie Boom Times in Fat City. Then print some more.

    Egads, the little boys in short pants with their sanctimonious sermonettes about inflation are ruining the world.

  10. Gravatar of TallDave TallDave
    11. January 2016 at 06:30

    This must be what it was like in the 1970s, when the Fed was targeting employment but government price controls and reduced consumer spending were going to Whip Inflation Now.

  11. Gravatar of TallDave TallDave
    11. January 2016 at 06:33

    Gary — Only in our timeline.

  12. Gravatar of AL AL
    11. January 2016 at 07:03

    In (perhaps unwarranted) fairness to the reporter, are you sure that the Fed didn’t/doesn’t think raising rates will help them get to their inflation target?

  13. Gravatar of ssumner ssumner
    11. January 2016 at 07:28

    Brian, Yes, China clearly needs to devalue.

    Ben, I love how inflation targeters insist that central banks should focus like a laser on inflation, until it implies easier money.

    Al, I think we can safely assume that the answer is no. The reporter is suggesting that central banks are unable to raise inflation.

  14. Gravatar of TallDave TallDave
    11. January 2016 at 08:51

    Some good news: we knew Kudlow was a market monetarist convert (or at least market-monetarism-curious), so his argument that the Fed should ignore strong labor growth when inflation is low isn’t shocking, perhaps more interesting is that the column appears at National Review.

    Lars has video as well. Great stuff, ranting “let people work!” and quoting Milton Friedman.

  15. Gravatar of Jean Jean
    11. January 2016 at 09:00

    BIS officials have been making bizarro statements for years now. Best to ignore them. Scott, did you see CNBC this morning? Chinese are getting into the US and Canadian dollars in a big way; the average transaction is $200,000!

  16. Gravatar of JFCM JFCM
    11. January 2016 at 09:01

    Some parts of his views might be based on this study…


    I am still confused how demographics could impact the path of monetary, assuming an independent central bank that cares about inflation expectations, policy i.e. inflation. Seems to me as if they confuse level effects with growth effects (of course not easy to disentangle).

  17. Gravatar of Gary Anderson Gary Anderson
    11. January 2016 at 09:25

    Tall Dave, Babylon has already been defeated with the sacking of Rome. This neo Babylon with the Roman Soldiers, Gog and Magog, paraded out once a year to protect the Wicked Square Mile, will also be defeated.

    I have a question. Lars Christensen has said NGDP has been working or almost working in Japan. But 10 year yields in Japan are stuck at near all time lows. So, John Mauldin has said that the bond market in Japan is totally controlled by the BOJ and there really is no market. Does anyone know if Japanese bonds are used as collateral for derivatives trades at all? US bonds are massively in demand for such trades. Why not Japanese bonds, or are we being fooled somehow?

    Second question, is the way of the future simply to freeze the bond markets everywhere? If so, what will substitute for bonds as collateral in the interest rate swaps markets.

  18. Gravatar of Gary Anderson Gary Anderson
    11. January 2016 at 09:58

    Too clarify, I am not for bonds as collateral in derivatives markets as they push yields down.

  19. Gravatar of LK Beland LK Beland
    11. January 2016 at 10:11

    These people probably also believe that 1970’s inflation was not a monetary phenomenon. It’s scary to think that they have a substantial amount of influence on policy.

  20. Gravatar of Britonomist Britonomist
    11. January 2016 at 10:34

    BIS has always been a bit contrarian.

  21. Gravatar of TravisV TravisV
    11. January 2016 at 13:49


    Brad DeLong:

    “The problems we face now, Stiglitz points out, include “a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity.”

    He says the only cure is an increase in aggregate demand, far-reaching redistribution of income and deep reform of our financial system. The obstacles to this cure, he writes, “are not rooted in economics, but in politics and ideology.”

    Indeed. Joe Stiglitz is right…..”


  22. Gravatar of TravisV TravisV
    11. January 2016 at 13:50

    Marcus Nunes’s reply to DeLong:


  23. Gravatar of ssumner ssumner
    11. January 2016 at 14:27

    Talldave, That’s good.

    Jean, Interesting.

    JFCM, Odd that they think lots of old people leads to high inflation–consider Japan.

    Travis, Unemployment has recently fallen from 10% to 5%. Does that seem like a negative demand shock? I don’t understand that argument. Employment has been rising at a much faster pace than the working age population.

  24. Gravatar of Steve Steve
    11. January 2016 at 16:23

    Atlanta Fed GDP Now is down to 0.8% for Q4.

    I am expecting ~2% NGDP in 2016.

  25. Gravatar of Randy Barrineau Randy Barrineau
    11. January 2016 at 19:17


    After many years you have finally arrived to this reality: https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwj7hK7Gp6PKAhWCmh4KHY8yA3YQjRwIBw&url=http%3A%2F%2Fmemory-alpha.wikia.com%2Fwiki%2FMirror%2C_Mirror_(episode)&psig=AFQjCNGa9HMte-6umDTknP2u503rC5P55Q&ust=1452654955163103

    It is a scary place, my friend.

  26. Gravatar of Gary Anderson Gary Anderson
    11. January 2016 at 19:18

    So, can there be a speculative NGDP targeting that is not good for society? If the BOJ is buying real estate, is that speculative or is it a good thing. RE is already pricey in Tokyo. So, making in more expensive does what? Like Ray, I ask, is there a solution?

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