Greg Ip

Articles by The Economist’s U.S. Economics Editor

Central banking and the crisis: Emergency manoeuvres

leave a comment »

With developed economies in dire straits, central bankers have taken the tiller. Not all of them are happy about that.

Aug 13th 2011 | from the print edition

[Greg Ip]

COMETH the hour, cometh the central bankers. On August 8th the European Central Bank (ECB) began buying Italian and Spanish bonds in an effort to stop the sovereign-debt crisis from crippling two of the continent’s largest economies. And a day later America’s Federal Reserve made an unprecedented commitment to keeping interest rates at more or less zero for two more years to keep a stalling economy out of recession.

In both cases the dramatic steps were taken in the face of political failures to get to the heart of the problems at hand. The fact that they took both banks well outside their normal zones of operation was underscored by the internal dissent both moves faced, dissent rarely seen in the consensus-driven world of central banking.

The initial market reaction was positive, at least on one side of the Atlantic. Yields on Italian and Spanish bonds fell sharply relative to Germany’s. In America Treasury yields fell and stocks rose—but not for long, as equity markets fell again on August 10th. No one should see this as a fundamental turnaround. The ECB’s earlier bond-buying hasn’t saved smaller countries from punitively high government-bond yields; the Fed’s previous interventions haven’t spurred a robust recovery. The big issues of America’s stagnant economy and Europe’s debt crisis remain in the hands of elected politicians who still seem inadequate to the task. But at least central banks have shown themselves ready and able to act.

The entire article is linked here.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: