Saturday, October 23, 2010



Axel Weber, the current head of the Bundesbank, used to be a shoo-in to be the next president of the European Central Bank. Then he started acting like a central banker. He, in typically German fashion, was never very keen on the ECB purchasing the sovereign debt of eurozone countries, largely fiscally wayward eurozone countries, no questions asked, no discipline demanded. Then he proposed that such purchases, which amount to a subsidy of countries that can’t get their fiscal houses in order with the thin air of newly created money, be curtailed as quickly as possible, as was originally promised when such purchases started in response to the Greek “crisis.” His suggestion, or perhaps his demand (Mr. Weber, as a good central banker, is perhaps not the most diplomatic guy in the world.), was quickly rebuffed by his fellow ECB governors, who pleaded monetary and fiscal reality. Mr. Weber then warned, in perhaps my favorite quote of the last year, against

“…the illusion that central banks can achieve things that only the taxpayer and ultimately the governments can achieve.”

It looks like, for the sin of acting like a responsible central banker, Mr. Weber has blown his chance to head the ECB. The job will likely go to Bank of Italy President Mario Draghi, who may be a terrific guy but whose most salient attribute at the moment is that he is not Mr. Weber. Mr. Draghi is also known for his “crisis management” and “diplomatic” skills, which, roughly translated, means he is willing to go along with the further debasement of the euro in order to allow the continuation of fiscal irresponsibility on the periphery of the eurozone. So it goes.

When one thinks of latter day central bankers, or at least those central bankers who have a chance at positions of great responsibility in an era when politicians and the citizenry pass the buck to central banks that are assumed to possess mystical powers and magic wands, largely in the form of turbocharged printing presses, one image comes to mind, at least to those of us who remember the original Flash Gordon serials. Whenever Flash Gordon, Dr. Zarkov, and Prince Barin were captured by Prince Vultan, Vultan put our intrepid heroes to work shoveling coal into the furnaces that generated the power necessary to keep the flying city of the Hawkmen afloat. With each shovel of coal, the furnace would heat with an intensity that made Flash, Zarkov, and Barin recoil in pain from the heat. But the coal was quickly burned, necessitating yet more seemingly futile shoveling to satisfy the incessant demands for more power. The furnaces, and Vultan’s cruel taskmasters, were never sated.

And that about sums up the role of the central banker today; keep shoveling money at various problems, and, in the case of the ECB, problem countries, that continually demand more cash be burned to fuel their esurient spending habits.

No comments: