"The policies of any one central bank may well be perfectly rational.... But so is a decision by any one sheep to run with the flock when in danger. The trouble is that the whole flock might be heading for a cliff."
The quote above is from William Hague, former UK Foreign Secretary, who today is out with an article in The Telegraph critiquing quantitative easing- and low interest policies by central banks around the globe:
"In 2008 the central banks reacted to a massive crisis they had completely failed to foresee by cutting rates to record lows and embarking on “quantitative easing” – pumping trillions of dollars into their economies by buying up the assets of commercial banks. The trouble is that eight years later they are, to varying degrees, still doing it. Like doctors keeping their patients on a drip many years after an operation, they are losing credibility and producing very dangerous side effects."
Hague correctly points out some of the "drawbacks" to these central bank policies, including:
- asset price inflation ("...they are blowing up a bubble of make-believe money...") benefiting the rich at the expense of the poor
- a reduction in company investments
- pension funds now generating insufficient returns
- central banks giving preference to some companies over others through their buying of corporate bonds
- "zombie" companies being kept artificially alive dragging down productivity
- a loss of public confidence in authorities
- that the accumulating effects of loose monetary policy globally are intensely political - "...huge public and political anger is going to burst over the heads of the world’s central banks."
Excellent to see a political authority from the UK pointing out some of the grave side-effects and "unintended" consequences of monetary policies run wild around the globe.