Central Banks Revealed They Are Now Impotent
BY SY HARDING
If you go into the woods with a gun and meet an angry bear, and you make a great noise firing off your ammunition but miss the bear, the noise only scaring it off for a while before it comes back at you again, and you keep firing the gun and making a great noise, but continue to miss, the bear catches on, and so do you. You realize you’re almost out of rounds, that firing more will probably be unproductive since you really aren’t a shooter and the rounds don’t go where you aim them. But since just making a noise had been effective in at least scaring the bear away for a while, maybe you can save yourself by just waving the gun and making a lot of noise. You know it’s an act of desperation not likely to succeed – but it might. So it’s worth a try, and what else can you do anyway.
This week central banks and euro-zone officials showed us that is the predicament they’re in.
In the U.S. the Federal Reserve, repeatedly threatened by a stumbling economic recovery, has fired off rounds of quantitative easing each time, accompanied by considerable hullabaloo. The effect was limited, the menace soon returning. And it’s become debatable whether firing off the quantitative easing was itself helpful, or if the temporary reprieve each time was just due to the hope raised by the accompanying rhetoric.
The threat of the economy slowing dramatically has returned again this summer, and this time the Fed seems only able to make a noise about having more ammunition it could employ, but not even willing to reveal what it is, let alone fire it off at the problems.
In Europe, euro-zone officials have been firing off repeated rounds of ammunition to no avail for more than two years. Each time the debt and banking crisis has soon come back at them even more aggressively, and they have waved additional weapons they might use and made a lot of noise that occasionally raised hope.