Central Banks Can’t Save the World This Time
By Mohamed El-Erian Aug 2, 2012 6:30 PM ET
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Bloomberg) The three central bank meetings this week -- the Bank of England, the European Central Bank and the Federal Reserve -- made very good cases for additional stimulus measures, though they failed to specify what these would be.
Equities and certain bonds that had surged on the basis of last weeks verbal assurances by central bankers and political leaders sold off. There was no panic given central bankers promises to do more in the future should additional action be needed. This is what the standard narrative has been.
But it misses important context, and there is more at play here. The unfortunate reality is that, unlike during the financial crisis of 2008 and 2009, central banks cant be the saviors this time around for a struggling global economy. Other government entities, with better-suited policy tools, need to step up to the plate.
Why did central bankers disappoint so many this week? I suspect that they wish to keep pressure on other policy makers who demonstrate none of the necessary urgency. The bankers also realize that their policy tools are increasingly less effective. To quote Mario Draghi, president of the ECB, central banks cannot replace governments. Theres something else: Central bankers more than anyone are being careful to keep dry whatever ammunition they still have. ...............(more)
The complete piece is at:
http://www.bloomberg.com/news/2012-08-02/central-banks-can-t-save-the-world.html