Powerless Central Bankers

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Hello and welcome to Equital Conversations.
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I'm Gerald Ashley, and once again I'm joined by my good friend and colleague George Cooper.
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Today we're both very pleased to have macroeconomist Damien Pudner join us as a guest.
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Damien's involved in a number of ventures to to do with macroeconomics, not least of which he uh a recently formed new think tank called the Great British Think Tank.
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So, Damien, welcome.
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And can you give us a little bit of background on that think tank?
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Of course, well, well, thank you, Gerald and uh George, for inviting me on the show.
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Um, yeah, so uh a little bit of background.
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I've spent 25 years in the financial markets uh working at various investment banks and hedge funds.
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Um, now moved across into more of the uh academic and policy side of things.
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So, my view that one of the issues with the country at the moment is not that we have too much information, but rather it's politically filtered or bureaucratically hidden or presented in a way that makes it almost impossible for people to decipher.
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And to me, that's wrong and undemocratic.
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So the Great British think tank was set up about three months ago now.
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It's an independent data-driven think tank and media platform.
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It's editorially independent, it's not affiliated with any political party, and all its figures are sourced from official public bodies, including the ONS, the OBR, HMRC, DWP, Bank of England, etc., etc.
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So the mission uh to to keep it short is to arm the public with clear, no-nonsense facts without the political spin about how the government spends and misspends their taxes, as well as to present the main economic data on the economy.
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So data not volume.
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So you're really gonna try and shine quite a searchlight and uh on on some of, as you say, a lot of government data is um one's almost tempted to say deliberately hidden.
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With that, with that in mind in uh in our minds, let's talk about the central topic we're gonna talk about today is central banks.
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Uh George, I think I'll let you um get the ball rolling.
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Um there are a number of different issues that even the just the casual observer of uh finance and the economy um can see that central banks are front and center.
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Maybe a good point to start is the debate about just how independent central banks are and you know whether that's true or not really what what is claimed.
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What do you feel?
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Yes, Gerald, I think this is a a topic that we all need to think about.
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I I remember a few years into my career in the financial markets, I remember I think it was Gordon Brown making the decision to make the Bank of England formally independent.
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And it has been formally independent, notionally at least, since um ever ever since.
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And I was a great enthusiast for that, but I'm becoming a little more skeptical with time.
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So I Damien, I mean, I know your if it was mastermind, this would be your pet topic.
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Um so let's hear what you think.
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Yeah, I mean, I I would start by saying that I am firmly in favor of operational independence of the of the Bank of England.
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You know, I would not give interest rate policy back to the Chancellor, and certainly not this Chancellor.
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And it's important to remind people, of course, that the Bank of England is operationally independent to set monetary policy, but it's not goal-independent like the Federal Reserve or the European Central Bank.
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So the Chancellor sets the remit for the inflation target of the bank.
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So I I am in favor.
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Um, I I don't like the idea of governments who have an obvious preference for lower interest rates and the temptation, especially around um election times or when the public finances are under pressure as they are now to suppress rates and uh to ease policy.
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So on the face of it, I'm I'm very happy with independence.
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The problem to me is not independence, it's accountability.
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And that's where, certainly from the Bank of England point of view, we we have an issue.
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Because if you can make the mistakes that happened with policy as I see it around 2021-22, then there has to be much greater accountability and there has to be consequences if things go wrong.
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If you don't meet your your primary mandate target for a sustained period of time, then it's not good enough just to say, well, I'll write the open letter to the Chancellor explaining, you know, potentially how long it's going to take to get back, what went wrong, what policy stance we're going to take.
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That's not good enough.
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You know, there has to be re repercussions.
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And that may be people need to lose their jobs.
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That's interesting.
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You mentioned the mistakes of 21-22, which is um that's an area that I've I would focus on as well, a time a time that I would focus on.
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So what do you think the mistakes were in that period, Damien?
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The the main thing is is the bank just doesn't look at the money supply.
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It's it's looking at the the wrong variables.
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Because it has a focus on the one primacy variable of inflation, it took its eye off the the bigger picture, if you like, and what the money supply was telling the bank.
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And this is a fundamental issue I have with with the Bank of England for the last couple of decades, to be honest.
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Put money into the economy at a time when the fiscal transfers from the government were also exceptionally large.
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And the combination of the two together, which was very different to what happened in 2009, um, the combination of the two of them together was always going to produce an inflation spike because the output couldn't keep up with the money supply hit in the economy.
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It was a a form of rocket fuel, effectively, was it?
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I mean, they're they're sort of pouring on loads of fuel to something that's already going in the wrong direction.
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Absolutely.
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So so the mistake was potentially not the initial QE that the bank did.
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I could have a uh you know an argument that that was potentially the right thing to do, but then continuing that on to a second and third round, uh, I think that was the mistake.
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You know, so you had this emergency scale monetary expansion after the liquidity emergency from the Bank of England point of view had already passed.
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So uh by 2021, you know, the the position was completely different.
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Deposits were abundant, fiscal policy, as I say, was extraordinarily expansionary, economies were reopening, albeit slowly, and yet the bank and also the Fed continued buying assets, and that was a mistake.
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I I think this this brings up an interesting point.
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Because when I said at the at the beginning that I'm getting more skeptical about central bank independence, what I meant by that was I'm not skeptical about the idea that they should be independent.
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I'm skeptical about the question of whether they are actually independent.
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Because it it strikes me that almost as soon as they were made independent, they started defending their independence.
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And this is not just the Bank of England, but all of them, including the Fed, they started defending their independence by making sure that they never seriously disagreed with the current political agenda.
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So in a so we end up with a situation where they're notionally independent, but through the back door, they're they're kind of preemptively doing what the government demands anyway, which which is I I suspect your accountability issue.
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Yes.
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I I I mean, even if you didn't believe that to any strong degree, certainly after 2009, when QE came into play, it's impossible to say that that the Bank of England is independent from um the political uh state.
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It because the the impact of QE on the fiscal finances of the government are so vast, and we're seeing that now, that it it's impossible to say that they're politically independent.
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I mean, QE, to put it in
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a in a nutshell, politicized the central bank, you know, politicized the Bank of England.
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So whether they were before or not, certainly since 2009, they're they're politically entwined.
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I would argue there's another um there's another event that we've sort of memory-hold, and that is the the way the central banks accommodated the vast spending uh in the COVID lockdown.
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You know, that was I can understand, you know, why they effectively felt morally they had to do it at the time.
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But the reality was that that took away a lot of the discipline that would ordinarily be imposed on government.
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Say, governments decided we could shut the whole economy down to deal with one problem, and there was no thought as to what that a good cost-benefit decision in terms of the other costs in the economy.
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One element to this, George, is maybe this is slightly contentious, but is the um competence of politicians.
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I mean, we talk a lot about the competence of central banks, but one has to wonder uh how how many um G7 politicians really understand monetary policy and fiscal policy and how they're they are intertwined.
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And really, in a way, were maybe quite passive during the sort of 20 teens once QE was on.
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You know, there's a lot of argument that it was it was suppressing rates for far too long.
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I mean, it seems odd to think, but at one stage people were thinking that we would maybe even have a zero rate interest policy um in the UK.
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Um so how how are we going to make all of this better, I guess, is my question.
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Well, uh, I mean, you're right.
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I mean, politicians are um, you know, very much lacking in monetary policy or the understanding of of the you know how monetary policy transmits to the wider economy.
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It's difficult for monetary economists itself to uh look at you know all the different channels and all the different effects that it has on the broader economy, on asset prices, um, how it then it transmits to wealth effects, inflation, et cetera, et cetera.
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So it is very difficult.
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I mean, I'm not saying that every politician should become an economist, but I think those advising them need to reflect on what it is exactly that they're telling um their paymasters, if you like.
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So they they need to really get some serious economists with a very broad remit, I guess, of you know, what is monetary policy, all the different types of uh theory that's out there, not just this Keynesian uh orthodoxy that we hear so much about, but look at other things, you know, look at a bit Austrian economics, look at um, you know, monetarism, you know, and there's lots of other things that they should be looking at rather than just you know tax and spend.
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I just wonder if the political background is towards more centralization of the state.
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So in the UK, uh the government's very happily going around announcing that they're nationalizing this, that, and the other.
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Uh, having been through all this once before, I'm rather wary of how it's going to end.
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And even if you go to the United States, where Donald Trump just at a drop of a hat announces that they're going to take a government stake in various key industries, um, it's framed differently as it's another brilliant business deal by Donald.
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But of course, in a way, it's partial nationalization.
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So, in fact, is the is the tide pulling towards more and more central control of everything in within government?
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And and you know, they're going to clip the wings of of central banks operationally.
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That's a very good question.
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Uh, I mean, it does feel that we are moving in that direction of more government intervention, more nationalization um here and abroad.
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And to me, that's very, very worrying because it's the complete opposite direction of where I believe that policy needs to go.
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We need to get back to free markets, we need to get back to the private sector, driving growth.
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We need to attract entrepreneurs, and therefore we need lower regulation, we need lower taxes, you know, we need incentives to bring these entrepreneurs to the country, not push them abroad.
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So to me, the whole political economic policy seems to be moving in the wrong direction, and there's very little pushback, uh and that surprises me.
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It and as you you say, it seems to be nationalization through the back door almost.
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And um, I don't know what George thinks about this, but uh it's very concerning to me.
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I would agree with you, Damian.
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I I mean I think it's it's interesting.
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We as always a lot of these political uh or economic political trends sort of emanate in America and then migrate over towards us.
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And you know, one of the things that people were saying about Trump and President Trump in his second term, particularly, there were those making comparisons with Reagan.
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And the really he couldn't be further away from Reagan.
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He's a he's an extreme uh interventionist in the economy, the you know, the the tariffs, the taking state uh stakes in in enterprises and things like that.
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And interestingly, I see that with the the same trend with the the new sort of start-up parties in the UK.
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There isn't there isn't a a deregulation free market agenda from in any of the offerings that are being given to the to the public in the UK at the moment.
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And you know, e even if you disagree with it, I think it disagree with that agenda.
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I think you've got to accept at some level that it would be healthier if in a in a healthy democracy you did have genuine alternatives, and and that's just not being offered to the to the public at the moment.
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No, it it seems that every problem is now met with more spending, another concession, another guarantee, you know, another supposedly temporary scheme that becomes permanent, you know, or we'll nationalize this, we'll support that.
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And you know, monetary policy cannot stop the government running an irresponsible budget, but it can refuse to accommodate the inflationary consequences of one.
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And I think that's where we get to the issue where we're very close now on the you know the credibility of the central bank and fiscal dominance.
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And you'll be fully aware, of course, both of you, of you know, the issues of fiscal dominance.
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And I think as the state spends more, you know, monetary policy has to squeeze the private expenditure, if you like, to maintain nominal stability.
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So the result may be a larger state, higher interest rates, but a smaller private sector.
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And I think that is very, very worrying.
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So, you know, that there's a point where fiscal policy is is set in the boundary for monetary policy and independence of the central bank exists only on paper, really.
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Yes, I I I think that that sort of hits the nail on the head.
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And it's that sort of spiral that I'm I'm worried about that the effectively the state is taking a bigger and bigger share of the cake.
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That's shrinking the private sector, but increasing the tax burden on the private sector, and that creates a positive feedback loop where we keep increasing the tax rates, we find we're we're well over the peak of the Laffer curve, so the the private sector starts contracting, and then they respond with more taxes again, and we go into this sort of negative spiral.
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And you know, we're I think we're pretty clearly in that uh in that phase, but what we don't have is any is any of the big political parties, or even the minor ones for that matter, that recognize this and are pushing back in the other direction.
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I I think this brings in um where there's a a theme uh to some
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of our past podcasts, which is when is the crisis coming?
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Because somewhere we can argue about timing, it might be a very long way away, but one senses at some point this will have to come to a stop or will have to come to an end.
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Do you have any kind of feeling on that, Damien, or am I being overly pessimistic at the moment?
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I don't think you've been overly pessimistic.
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Uh I think I get asked this all the time, and and it's really difficult because arguably we're already in the crisis.
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The private sector is certainly in crisis, even if the public sector is not.
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The the problem with crises, and and I defer to to George on this, who's the expert on uh crises, but my view is that it it tends to only come to everyone's attention once it's too late.
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And I and I think it's already too late.
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Now, from a market point of view, you know, tenure rates at 5% yields is is not great, and um, you know, the costs associated with that, you know, 100 plus billion a year in debt interest is not sustainable.
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So from that point of view, we're already in a crisis.
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But from a genuine bond crisis, I would argue that we would have to see tenure rates probably another 200 basis points higher, so around 7%.
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But by then things will have got to such a position that there is a prospect that we would need some kind of technical help from the IMF or somebody else.
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But um, yeah, the private sector's already in crisis.
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And from a tax and spend point of view, I think we've reached an inflection point where something has to change within the next two to three years.
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Otherwise, we we the economy really is in trouble.
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I broadly agree with that.
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I think the the challenge I have at the moment where with imagining a sort of IMF bailout is the the problem with an IMF bailout is that it sort of presumes that somewhere behind the IMF, there's a bunch of other countries that are well managed and have sound finances.
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And and it's kind of difficult to imagine who they are at the moment, because it certainly isn't America.
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So that that's um you know, that just elevates the worry level slightly.
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But I would agree with you.
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When we're not in a sustainable on a sustainable path, and we're not even debating the path at the moment.
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No, we're we're in this kind of position of a managed decline.
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You know, when you have borrowing costs that are, you know, 110 billion and increasing per year, and you have three trillion of debt or nearly three trillion of debt, it's not sustainable.
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So we have this managed decline, and unless some radical economic, monetary, and political changes take place within the next two to three years, I think we're gonna be in for a very, very bad time as an economy.
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I think radical change itself brings its problems, doesn't it?
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You know, I mean, some people advocate, well, what we just have to
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do here is stop government spending, we've got to slash it.
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And of course, you instantly put your your yourselves into maybe quite a deep recession, which doesn't necessarily help things.
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Um, is there a gentle pathway forward both you gents can see or or not?
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From my point of view, no.
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I I think then there needs to be some pain before things get better.
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Um and and and and whoever's in power in 2029 or before, and I think a general election will probably come before, there's going to have to be some hard decisions made and some reality from politicians and with the public.
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The public are gonna have to realize that even if the government decides to cut back on its spending, um, on welfare, um, on you know, idiotic uh infrastructure spends that run into the tens of billions uh overspending and and and and decades late, even if those cuts are made and they're going to take time, it's going to take longer than a five-year political term.
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This is going to be a generational reset.
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And there probably will need to be, for a short period of time, higher taxes while that transition is taking place.
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But the direction of travel has to be lower government spending, lower taxes, uh, lower regulation, uh and back to the private sector.
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Yes, I I again I I I broadly agree.
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I don't I don't think there is a glide path out of this without taking pain.
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In fact, one of the one of the problems with running constant fiscal deficits is that the economy becomes habituated to them.
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So when you when you try to run just a a normal budget, and and here I'm not even talking about a balanced budget, a budget that's two or three percent of deficit, which if you're optimistic, might be in line with growth.
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So you might be able to claim that that's a uh a viable long-term level.
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But just to get back to that sort of normal budget is gonna put you into a recession just from the the change year on year.
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Now, I'm going to try and inject some optimism, which is not what I normally know.
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That's not your that's not normally your mandate, Gerald, but carry on.
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No, that is not my uh my standard approach.
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Uh well, it's not very optimistic, but again, I'm gonna ask you, gents, a question along the lines of is there anybody amongst central banks and the relationships with governments around the world who's actually doing this quite well?
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I mean, I think we're not, you know, we we've focused on things being bad in the UK, and they're not they're certainly not brilliant in the United States, but is are there There's some exemplars out there that that may give us some hope.
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I'm gonna leap in with um with an avoidance of your question in the sense that no, I don't I don't think there is I can't put my my finger on individuals that are doing it.
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However, I do think there is the start of some market forces that are starting to um inject discipline.
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And here I'll come to what's been happening with the gold markets.
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You know, not in the last few months because the the process of gold inflation has sort of taken a pause during the uh Iran war.
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But I think in the period up to the Iran War, and I suspect it will it will start to resume shortly, um, we see central banks around the world moving away from holding each other's treasuries as reserve uh assets, each other's bonds, and starting to hold gold.
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So, in a sense, this is the central banks admitting to themselves what's going on and deciding to try to protect their own reserves from what's going on because of what they're doing themselves.
00:23:08.720 --> 00:23:13.839
Um, so you could argue that uh gold is reasserting itself in the monetary system.
00:23:14.160 --> 00:23:17.680
Yeah, and I mean I would I would agree with with with much of that as well.
00:23:17.680 --> 00:23:21.519
And and I think that that's something that's been happening over the last few years.
00:23:21.519 --> 00:23:28.240
It's quite clear to see that through uh market forces, and I think that will probably continue.
00:23:28.240 --> 00:23:31.119
As for individuals, not really.
00:23:31.119 --> 00:23:32.400
I I I think it's difficult.
00:23:32.400 --> 00:23:37.759
It'll be interesting to see what happens with the Fed and and uh uh Walsh and what he does.
00:23:37.759 --> 00:23:43.119
I think he's gonna be a lot more hawkish than Trump probably thought he was going to be.
00:23:43.119 --> 00:23:51.680
Uh but he's been put in a very difficult position because if he keeps policy loose, he'll be seen as pandering to to Trump's demands.
00:23:51.680 --> 00:24:11.359
So I I think in a way it's worked out very badly for Trump in that he now has to, as the Fed chair, he has to kind of draw a line in the sand and and be a bit more um of a hawk than he might otherwise have been had that pressure not come from um from the White House.
00:24:11.359 --> 00:24:24.880
But I think just more generally, I get the sense that central banks are taking more note of what is going on in the markets, the need for accountability, the need to act quicker.
00:24:24.880 --> 00:24:32.799
Um and if you're going to to use the nuclear option of uh increasing the money supply through QE, then has to be reversed quicker.
00:24:32.799 --> 00:24:36.960
Um, it can't be allowed just to remain um in in the economy.
00:24:36.960 --> 00:24:45.279
So I think that's the big lesson that central banks, I believe, have learned over um the COVID pandemic episode.
00:24:45.279 --> 00:24:50.960
And I think the other thing is that um the money supply has reasserted itself.
00:24:50.960 --> 00:25:05.519
And and I do believe that um from a Bank of England point of view, who ignored the money supply for the last 30 odd years, it's nice to see the money supply you know back in the monetary policy report on a regular basis, and it has its own box now, which is great.
00:25:05.519 --> 00:25:18.400
So, you know, at least, if not explicitly looking at the money supply, it's now taking more of a uh or it has more of a weight in uh in their thinking and their reaction function.
00:25:18.720 --> 00:25:19.599
Yeah, okay.
00:25:19.599 --> 00:25:25.920
Um I think we're sort of coming to the towards the end of our uh little chat about this.
00:25:25.920 --> 00:25:29.759
One quick nuclear question to finish things off with.
00:25:29.759 --> 00:25:32.240
Um, do we actually need central banks?
00:25:32.799 --> 00:25:40.480
I think we do, and and that is because I personally believe that financial markets are inherently unstable.
00:25:40.480 --> 00:25:43.680
They uh because of the the credit system within them.
00:25:43.680 --> 00:25:53.759
So, you know, that's um I believe in many schools of economics, um, it that's a slightly sort of Austrian uh take on on the financial system.
00:25:53.759 --> 00:26:00.400
I believe that when it comes to instability in capital markets, the Austrian school is the best to look at.
00:26:00.400 --> 00:26:07.119
Uh so I do, but the Austrian school often would say, therefore, you don't need central banks.
00:26:07.119 --> 00:26:09.039
I actually think you do need them.
00:26:09.039 --> 00:26:20.079
But we can't have them, we can't we can't operate in a situation where the central bank is constantly trying to prevent all downturns.
00:26:20.079 --> 00:26:28.000
Because if you prevent all downturns, you end up creating you know an artificial level of activity that can't be sustained.
00:26:28.000 --> 00:26:38.160
So you you swap a short-term crisis for a or a series of short-term crises for a much bigger uh crisis in the future, which is actually I think where we're heading.
00:26:38.160 --> 00:26:44.319
And and I would say Greenspan was was largely to blame for that mode of operation which is still in place.
00:26:44.319 --> 00:26:45.279
So Damien.
00:26:45.599 --> 00:26:50.799
Yeah, I I think not in every conceivable monetary system uh would be my answer.
00:26:50.799 --> 00:26:56.640
You know, there are serious alternatives, free banking, private clearing houses, currency boards, etc.
00:26:56.640 --> 00:26:57.119
etc.
00:26:57.119 --> 00:27:09.920
And but I think the question is, under the banking system that we actually have today, then the answer has to be yes, we do need a central bank because they have the critical function of lender of last resort.
00:27:09.920 --> 00:27:15.200
And I and I think you know, we we have to go back to the that classic principle of Walter Badgett.
00:27:15.200 --> 00:27:17.119
You know, he was broadly right.
00:27:17.119 --> 00:27:20.079
And he was no supporter of of central banks, of course.
00:27:20.079 --> 00:27:26.720
But his argument was we have a central bank and therefore we have to deal um with the situation we're in.
00:27:26.720 --> 00:27:36.000
So we need a central bank to lend freely against good collateral at a penalty rate when we're in these uh financial liquidity crises.
00:27:36.000 --> 00:27:40.240
And that's not to rescue shareholders or uh protect management.
00:27:40.240 --> 00:27:46.400
You know, they need to bear losses, but we need to have that backstop for the um for the financial markets.
00:27:46.400 --> 00:27:52.240
And so from that point of view alone, I think yes, we we do need to have um a central bank.
00:27:52.240 --> 00:27:59.200
But it's it's not an ideal situation, but it's the one that we have, so we have to deal with it.
00:27:59.599 --> 00:28:03.039
I think that's been an interesting conversation today, gents.
00:28:03.039 --> 00:28:06.000
Again, I can't really pull too much out of that.
00:28:06.000 --> 00:28:09.519
That's very optimistic, but that's in my nature.
00:28:09.519 --> 00:28:12.160
But we shall see how things unfold.
00:28:12.160 --> 00:28:21.200
Um, it seems to me at some point we're going to have to have a crisis, and it's it's all about timing, not if we have one, but when we have one.
00:28:21.599 --> 00:28:26.480
I'll just say something about about that before we move on to the book recommendations, Gerald.
00:28:26.480 --> 00:28:41.039
And that is, you know, a lot of us that are interested in economic policy decisions and analysis and that, we do tend to talk about potential crises and focus on potential crises a lot.
00:28:41.039 --> 00:28:43.039
And that could be a criticism.
00:28:43.039 --> 00:28:53.759
But on the other hand, I think actually that's a good thing because that's the way that we avoid some of the crises or attenuate some of them.
00:28:53.759 --> 00:29:04.559
So if you're interested in policy, you actually do need to focus on the downside risks and discuss them because every now and again you might help to um to prevent some of them.
00:29:04.880 --> 00:29:09.680
Well, well, we all know from being in the markets that you know crises come along about every 10 years.
00:29:09.680 --> 00:29:12.319
So, you know, that it's not something that's going to go away.
00:29:12.319 --> 00:29:18.079
And what we need is a monetary fire brigade, but not the fire brigade that's running the economy.
00:29:18.079 --> 00:29:23.359
So, you know, they need to be more focused on monetary policy and not net zero and all this other rubbish.
00:29:23.759 --> 00:29:28.240
Now, you have given me a nice segue to my book recommendation.
00:29:28.240 --> 00:29:32.640
And as usual, I normally grab the microphone and insist on going first.
00:29:32.640 --> 00:29:37.039
Um, we'll give the last word to you, Damien, so but I'll go off first.
00:29:37.039 --> 00:29:43.200
And it's really um, again, it's a general theme I'm always banging on about, which is financial history.
00:29:43.200 --> 00:29:54.799
And a really good first book as a primer on, if you like, past crises and risk in general, is a book I had to look, I was surprised when it was written longer than I thought.
00:29:54.799 --> 00:30:06.160
Back in 1998, there's a book called Against the Gods by Peter Bernstein, with the um strat line The Remarkable Story of Risk.
00:30:06.160 --> 00:30:22.240
And it's a good generalist book, first principles of understanding risk, and also how markets and individuals, corporations, companies, all the rest of it, have kind of addressed that over many centuries.
00:30:22.240 --> 00:30:32.240
His uh view is that look, we are learning from the past, um, but please do take the trouble to learn from the past.
00:30:32.240 --> 00:30:35.279
So I think that that's my book.
00:30:35.279 --> 00:30:36.559
George, what have you got?
00:30:36.799 --> 00:30:54.480
Well, I thought I'd go for something on topic, and this is one I've recommended to you uh before, Damien, on on Twitter, and that is The Unanchored Central Banker uh by Manjo Pradan and um and a very famous economist, Charles Goodhardt.
00:30:54.480 --> 00:30:59.440
I think this is an important book, and it's very interesting on central banking.
00:30:59.440 --> 00:31:27.119
Basically, what they're saying is because of demographic change, because of an aging population, and an aging population that particularly uh controls the political system through through democracy, governments are now stuck in ever-rising deficits for social security and healthcare spending, and central banks are are going to be um really struggling to fight the inflation that comes from that.
00:31:27.119 --> 00:31:30.319
So it's um it's a very interesting book.
00:31:30.319 --> 00:31:32.400
I I'm not a big fan of the title.
00:31:32.400 --> 00:31:38.079
I think it should have been um you know called the The Powerless Central Banker or something like that.
00:31:38.079 --> 00:31:39.839
Um, but it's uh it's well worth reading.
00:31:40.160 --> 00:31:40.799
Oh, excellent.
00:31:40.799 --> 00:31:48.079
Um and and for mine, um I'm gonna go with uh Bernard Connolly uh and You Always Hurt the One You Love.
00:31:48.079 --> 00:31:52.079
It's a bit of a tomb, um, but very easy to read.
00:31:52.079 --> 00:31:57.519
And it's probably one of the sharpest uh recent critiques that I've read of modern central banking.
00:31:57.519 --> 00:32:12.960
Um his argument basically is that central banks have have not merely responded badly to crisis, but that their own framework has helped create repeated um cycles of high leverage asset price inflation and therefore instability.
00:32:12.960 --> 00:32:30.240
Um so I'm I'm not saying I agree with everything that uh that he says, but intellectually it's very serious and um very deeply uncomfortable, I think, for um you know central bankers today and and the consensus that they've been in for the last couple of decades.
00:32:30.240 --> 00:32:32.079
So um it's well worth the read.
00:32:32.079 --> 00:32:38.640
And the subheading just uh to put it into context, central banks and the murder of capitalism.
00:32:38.640 --> 00:32:43.119
So but I I would highly recommend that.
00:32:43.599 --> 00:32:52.880
Well, the sub the subtitle of mine is Demography, Fiscal Instability, and the erosion of the central bank's inflation fighting ability.
00:32:52.880 --> 00:32:56.640
So I think they're all sounds like they're all pointing in the same direction here.
00:32:57.039 --> 00:32:58.160
We're a happy bunch.
00:32:58.160 --> 00:33:08.559
I was gonna say, gentlemen, you um you're doing nothing to change our audience's view of us being a sort of um rather pessimistic group.
00:33:08.640 --> 00:33:26.480
Um though George is normally quite an optimist, but um yes, well, as you know, if I take off my um policy hat and put on my day job hat, one of the uh the one of the consequences of this actually is um uh is asset price inflation.
00:33:26.480 --> 00:33:30.240
So there is a there is a way to at least benefit from this if
00:33:30.240 --> 00:33:32.240
if only in nominal terms.
00:33:32.720 --> 00:33:42.079
And and just finally, if I may, um the one thing that we haven't touched on, which would have been uh good, but maybe for another podcast, is you know, has inflation targeting had its day?
00:33:42.079 --> 00:33:48.559
And my argument is that it's reached the end of the road um in the in the current contemporary economy that we have.
00:33:48.559 --> 00:33:55.039
So it can it cannot deal any any longer with repeated negative supply shocks or supply shocks generally.
00:33:55.039 --> 00:34:01.279
So we need to look at an alternative regime to um the inflation targeting that we currently have.
00:34:01.279 --> 00:34:08.880
And I've written about this uh for the IEA, and and I think that we should have a 4% nominal GDP target.
00:34:09.280 --> 00:34:24.320
That is a topic for uh for a whole other um podcast, and that that's one of the things I'm gonna be particularly paying attention to uh to the new Fed chair Walsh to see whether uh whether he's got some new thinking on that front, because I would agree with you.
00:34:24.320 --> 00:34:31.280
I think um, you know, the the whole idea of we can hit a two percent target is is just not there.
00:34:31.599 --> 00:34:37.760
Well, that gentleman is a nice trailer for maybe uh uh a another passion at this.
00:34:37.760 --> 00:34:41.760
Whether we have a crisis before we gather again, who knows?
00:34:41.760 --> 00:34:45.840
But um for today, Damien, thank you very much indeed for coming on.
00:34:45.840 --> 00:34:47.039
My pleasure, Gerald.
00:34:47.039 --> 00:34:51.039
And um well, we'll see what reaction we get get from this.
00:34:51.039 --> 00:34:52.719
But um thank you again.
00:34:52.719 --> 00:34:53.199
Thank you.
00:34:53.519 --> 00:34:55.039
Thank you both, thank you both very much.