WORLD CENTRAL BANKS ON “RED ALERT”
Ben Bernanke and Mario Draghi, with words but not yet actions, demonstrated this week that they are on red alert about the global economy.
Expectations are now high that Mr. Bernanke’s Federal Reserve and Mr. Draghi’s European Central Bank will act soon to address those worries. But both face immense tactical and political challenges and neither has a handbook to follow.
The stakes are higher for Mr. Draghi. He is in his first year of an eight-year term as the ECB’s leader, much of the euro area is in recession and the currency he oversees is imperiled—in part by fights among European politicians. Mr. Bernanke has only 17 months left before the end of his second four-year term, likely to be his last. The U.S. economy is growing, but too slowly to bring down high unemployment—and elected politicians aren’t offering much help either.
Both appear to be on a path toward expanding their balance sheets with large-scale purchases of debt from private investors. They are also exploring innovative monetary tools now that they have driven short-term interest rates, once their primary lever, nearly as low as they can go.
Many of today’s central bankers are chastened because their efforts to drive the global economy out of recession haven’t worked well.
“By normal standards and by what they would have expected a couple of years ago, they really pulled out all of the stops and now for the third year in a row it looks like the recovery hasn’t got legs,” said economist John Makin of the American Enterprise Institute. “They were confident they had a lot of tools to use, they used them, and the results have not been very heartening.”
red alert eh?..printing some more money will fix that..for a few months..then what?..print again?