'Dear Abby' Tells Fed to Refill the Punch Bowl
Suppose central bankers had their own version of the "Dear Abby" advice column. What might a trusted agony aunt recommend for them today?
DEAR ABBY: My bank has been hosting the party to end all parties for more than half a decade by keeping borrowing costs at a record low. In December, though, I was persuaded by my Wall Street banking buddies -- who've been a bit tired and emotional recently, because they can't make any money when my rates are near zero -- to take away the punch bowl by raising rates.
Now all my friends who've invested in the stock market are suffering hangovers. And my international rivals in the monetary policy game are merrily pouring yet more financial liquor down the throats of even their most inebriated guests in the bond market, causing yields to disappear at an alarming rate. Mario Draghi is planning to turn up the music next month by accelerating the European Central Bank's quantitative easing program. Haruhiko Kuroda just put in place his negative-rate policy at the Bank of Japan. And that tease Mark Carney at the Bank of England looks less and less likely to follow my lead by tightening policy.
What should I do? If the global economic party ends in disaster, I'll be blamed. If I reverse course and undo the December move, I'll be a laughing stock. Yours, Janet Yellen in New York.
DEAR JANET: You're not the first central banker to jump the gun on rates; remember the U-turn Jean-Claude Trichet had to make in the Eurozone after his 2011 policy errors? Quickly flood the interest-rate punch bowl with more vodka before your guests get too dry. (Yes, that may lead to a need for negative rates down the road, but the longer you stay in denial about that, the more painful it will be to drop below zero.)
DEAR ABBY: I moved to the U.K. in July 2013 to take a nice job leading the Bank of England with a lovely salary and a nice housing allowance. My efforts to charm the locals, though, have proven unsuccessful, despite my uncanny resemblance to George Clooney. There's a real risk that if I stick to my schedule and quit in 2018, I'll be leaving without having seen any, well, you know, `action' on the monetary-policy front. How can I get my mojo going? Yours, Mark Carney in London.
DEAR MARK: Wait a minute … didn't you used to live in Canada? And didn’t you pull the same stunt there between 2011 and 2013, promising lots of action but failing to make a move? And didn't you say, in June 2014, that you might make a move "sooner than markets currently expect"? No wonder a British lawmaker called you an "unreliable boyfriend"!
DEAR ABBY: I'm finding it increasingly difficult to treat my patients across the euro zone. I have only one monetary-policy medicine -- quantitative easing, which we all know has terrible side effects for savers -- and I have to pretend that everyone's suffering from the same economic malaise, even though that's obviously a fantasy. It doesn't help that Jens Weidmann, my German nurse, keeps badmouthing my treatment plan, undoing my efforts to keep the euro zone healthy. I'm being sued in the German courts for alleged monetary malpractice. And I've promised the patients I'll step up the dosage next month, even though it's increasingly clear the drugs don't work. What should I do? Yours, Mario Draghi in Frankfurt.
DEAR MARIO: I don't think I can help you. Maybe you should just hide in your office and let the German nurse take over; the euro patient may die, but that could turn out to be a blessing for all concerned.
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