Global Central Bankers Call For Fiscal Expansion

Central bankers don’t want to take the entire burden of reflating their respective economies.

From Bloomberg, (bold emphasis mine)

Central bankers gathered at an annual retreat in Jackson Hole, Wyoming, this weekend had a message for political leaders: monetary policy alone can’t keep the global expansion going.

Federal Reserve Chairman Ben S. Bernanke urged adoption of “good, proactive housing policies” to reverse the depressed U.S. real estate market and warned lawmakers to avoid steps that may hurt short-term growth. Ewald Nowotny of the European Central Bank Governing Council said euro-area governments should expand the powers of their regional bailout fund.

“Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” Bernanke said at the annual conference of policy makers and economists, sponsored by the Kansas City Fed.

The call to arms ended a month in which the Fed and the ECB raced to shield their economies from fiscal tightening and strengthen a world economy that is losing momentum…

Warning of a “dangerous new phase” for the world economy, International Monetary Fund Managing Director Christine Lagarde told the forum that risks have been aggravated by “a growing sense that policy makers do not have the conviction, or simply are not willing, to take the decisions that are needed.”

‘Twin Perils’

“Fiscal policy must navigate between the twin perils of losing credibility and undercutting recovery,” said Lagarde, who took the helm of the IMF in July.

Bernanke told the conference that the U.S. central bank still has a “range of tools” it could use to help the economy if needed, although he stopped short of signaling that the Fed would embark on a third round of government bond buying.

Central bankers essentially want global governments to reengage in expansionary fiscal actions or the euphemism for increasing government spending.

Regardless of whether this has proven to be effective or not, for policymakers what has been more important is the MEANS (borrow, tax and or inflate to spend) to attain an END (recovery).

Monumental amounts of money (or resources) have been thrown into the system since 2008 (or in about 3 years), yet the economic recovery of crisis-afflicted nations has continued to stagger.

This only shows that for policymakers, only the short term impact matters.

Never mind if most of these stimulus programs would end up in waste. Wasted resources represent consumed capital which is an obstacle to a real recovery.

Never mind if these measures would only be funnelled to the pockets of vested interest groups such as the politically privileged banking sector or the military industrial complex. The political redistribution of resources would only translate to the furtherance of political, wealth and social inequalities which many mistakenly blame on laissez faire capitalism, when in truth it has been crony or state capitalism, particularly the cartelized system of welfare-warfare government-central banking-banking system and the preservation of which, that has been responsible for the current mess.

Never mind if higher taxes would be another important consequence from such actions. Yet high taxes would serve as another vital impediment to genuine recovery overtime.

Never mind that in combination with central bank activities these activities would cause a surge in consumer prices that would not only hamper economic recovery but also stoke geopolitical and domestic destabilization since inflationism distorts economic calculation and impairs the division of labor.

The world has been continually living off from steroids provided for by the governments. These are symptoms of a rapidly degenerating system.

Ayn Rand said it best,

When you see that trading is done, not by consent, but by compulsion - when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see that money is flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed.

Such charades won’t last.