Evolution versus de-evolution.

We have copied below a brief section of a recent speech given by Jaime Caruana, General Manager of the Bank for International Settlements. His speech was titled ‘Redesigning the central bank for financial stability responsibilities’.

His words (our emphasis):

‘I take heart from the fact that so many parliaments have been seeking to fill the policy gaps revealed by global financial crisis, even where their countries were not directly involved.
I accept that this is difficult territory. Important powers of state are involved, with important consequences for citizens’ lives should policy failures due to inaction or misdirected action occur.
And I accept that dealing more effectively with financial stability concerns, and their intersection with prices stability ones, is going to be an evolutionary process. Evolution does not always progress smoothly, but rather in fits and starts.
Making progress will require a deeper understanding of the nature of financial instability, and its connections to monetary policy, such that we can set clearer objectives and make the reasons for action more transparent. And making progress will require the recognition that both price and financial stability are essential ingredients of the monetary systems of well functioning economies, and that they are in fact two aspects of the same public good.’

The full speech is available at the BIS website and is worth careful consideration.

We see clearly that the evolution referred to above is already happening, in clear view, but virtually all are blind to its huge significance. This is a pity, but is understandable, as mankind tends not to notice major evolutionary advances in real time, they just happen gradually, and are reflected upon by historians.

On the other hand, de-evolutionary forces are still very strong, perhaps stronger than ever. As evidence of the missteps that continue to be made, we cite the agitation in Sweden for a new mandate to be given to its central bank. Why? Because prices haven’t been rising fast enough, and free money is desired. Here is an article on the subject:


A pertinent section:

‘Sweden’s Left Party, which polls show may help form a government with the opposition Social Democrats after September elections, said political consensus is growing that the central bank needs a new mandate.

The chances for a dual monetary policy goal “are better than they’ve been in modern history,” Jonas Sjoestedt, the party’s leader, said yesterday in an interview in Stockholm. “It’s really the first time that the other parties have started to become more open to reviewing the framework and I think that once the dust has settled after the elections this autumn it’s time for us to propose a review.”

The Riksbank has confronted a barrage of criticism after Swedish consumer prices stayed below its price target for more than two years. The bank has been reluctant to cut rates amid concern that doing so would fuel record household debt burdens even as unemployment hovers well above 8 percent.’

Also this section made us smile (well, perhaps a grimace would be a more accurate description):

‘Sjoestedt said he will also argue in favor of changes to fiscal policy to remove breaks on the economy, and will seek to scrap Sweden’s 1 percent budget surplus target. Doing so will “free up space for long-term investments that increase productivity and competitiveness,” he said.

He wants to reduce public debt and his party favors a balanced budget. “Strong public finances are a big advantage for Sweden, especially since we would like a lot of welfare,” he said.’

He appears to want to reduce public debt, run a balanced budget (rather than a surplus). He wants ‘strong public finances’ as he feels Sweden ‘would like a lot of welfare’. He also wants to change fiscal policy to ‘free up space for ….etc.

This man is a socialist. He wants the central bank to finance deficit spending. Simple as that. He sees the Japanese doing it. He sees the Americans doing it. He sees the British doing it. He also would like some free money to dole out. There is no such thing as free money, there never is. We wish them all the very best of luck, they really are going to need it. De-evolution will eventually (and quite quickly) shoot itself in the head, and we look forward to that day. Thankfully, something better is waiting in the wings.

In the meantime, our clients are aware of the evolutionary developments, all happening with some haste as we type, and we share a high level of optimism for our future as a result of what we see. Please join us, should you also be interested in a clear view.



Posted in Uncategorized Tagged with: