\nLast September, the Fed announced full speed ahead with its third round of quantitative easing, also known as QE3. As the saying goes, three's a charm, or so they hoped. At the time, the Fed promised to buy $40 billion worth of mortgage...\nLast September, the Fed announced full speed ahead with its third round of quantitative easing, also known as QE3.
As the saying goes, three's a charm, or so they hoped.
At the time, the Fed promised to buy $40 billion worth of mortgage backed securities every month through the end of the year and to keep what is essentially a zero interest policy in place through mid 2015. The Fed also announced that it would purchase other long-maturity assets to bring the total monthly acquisitions up to $85 billion, with the bias toward the long end expected to put downward pressure on long-term interest rates. The Fed made clear that QE3 is open-ended, to continue as long as necessary to stimulate to a robust economic recovery.
Not to be outdone, in the aftermath of last year's Japanese election, the Bank of Japan announced that it would become an eager partner of the Ministry of Finance in terms of implementing so-called \"Abenomics.\" The specific policies included inflation targeting at a 2% annual rate, the pursuit of a strategy of yen devaluation, setting negative interest rates, radical quantitative easing, expansion of public investment, buying operations of construction bonds by Bank of Japan, and revision of the Bank of Japan Act.
Wow! Would the old style central bankers of the gold standard era, and even those of the post-war period, be rolling in their graves? What about today's central bankers, what would they make of such a move?
For that perspective, we turned to Paul Jenkins, former Deputy Governor of the Bank of Canada. Jenkins agreed that things had changed quite radically in the aftermath of the 2008 Great Financial Recession. Like his fellow Canadian compatriot, William White (whom we also interviewed), Jenkins expressed the concern that the demands placed on central bankers in the context of this brave new world of central banking activism might be too much.
Jenkins was concerned that political fallout could seriously compromise central banks' reputations for independence and politicize them to a degree in which they could become subject to vast institutional change and challenges. Jenkins also discussed some of the actions undertaken by the Canadian authorities, which generally seemed to deal with the 2008 episode and banking regulation in a far more successful and systematic way than their European and American counterparts. Canada was so successful, in fact, that last year the former head of the Bank of Canada, Mark Carney, was brought over to run the Bank of England.
Is there anything that Canadians other than Carney can teach the world these days about central banking? See the interview below and find out for yourself. \n
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