September 07, 2019 Saturday
Bedtime Story
How Independent Can Central Banks Be?
The queerest and the most damning aspect of
this whole chicanery is that greater the government goes in debt the greater is
the prospect of money supply increasing in the economy.
So where is the catch?
The catch is in the induced inflation and the
interest rates due to “excess” fiat currency in the economy but we will not go
into those because we are still to understand how this entire machination of
money creation works.
It is not surprising therefore that with
this lopsided economics where money is created ex novo (yet again a fancy
economic term for shameless printing of paper currency) it is the wealthiest
developed economies that have the greatest national public debts.
As I had said earlier the United States
federal government since its formation was in public debt; it was a nation that
was forged out of money created ex novo (the famous Continental currency or the
Continentals if you recall that collapsed on its own weight or rather volume).
It is both the governments of the United
States and Japan that are the world leaders in national debt figures both in
absolute terms and in relative terms such as percentage of GDP, percentage of
world public debt or even per capita.
The central bank in theory is supposed to
control the amount of money it prints regardless of how much the government
(“we the people”) pressurizes it to print but in practice it is hard to believe
that the bosses of central bank would stay free and independent from the
clutches of the powerful politicians who have to keep the baying crowd pleased
and prevent from getting restless and storming the castle.
It is the general belief that at least in
most developed nations central banks are independent institutions but tell me
how can it be so when even the board of governors of the Federal Reserve System
(The Central Banking System of the united States) comprising of seven-member
are appointed by the President of the United States?
Moreover, it is the federal government that
sets the salaries of the board’s seven governors.
In every which way, right from its
appointment to its salaries, the Federal Reserve is an instrument of the United
States Government (meaning “We the People”) and yet it makes the farcical claim
that “the Federal Reserve System is an independent central bank because its
monetary policy decisions do not have to be approved by the President or anyone
else in the executive and legislative branches of the government, it does not
receive funding appropriated by the Congress, and the terms of the members of
the board of governors span multiple presidential and congressional terms.”
And even if let us presume that to some
extent some governors of the board of the Fed do manage to stay away from the
influence of powerful politicians and businesses what chance do the bosses of
Central Bankers have of banana republics such as Nigeria, Nicaragua, Pakistan,
Russian Republic or India?
We have recently been witness to governors
of Reserve Banks of India either resigning in protest (Urjit Patel and his
deputy Viral Acharya) and Dr. Raghuram Rajan not seeking extension of his term
largely due to disagreement with monetary (and not economic) policies of the
government.
Stay tuned to the voice of an
average story storytelling chimpanzee or login at http://panarrans.blogspot.com
Good night Mon Ami and my fellow cousin ape.
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Another great educator and a teacher that I am aware of is
Professor Subhashish Chattopadhyay in Bangalore, India.
While I narrate stories, Professor Subhashish an electronic
engineer and a former professor at BARC, does and teaches real mathematics and
physics.
He started the participation of Indian students at the
International Physics Olympiad.
Do visit him here:
All his books can be downloaded for free through this link:
For edutainment and English education of your children, I
recommend this large collection of Halloween Songs for Kids:
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