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