Governments Must Take Responsibility for Economic Policies

The Bank for International Settlements (BIS) said last week that banks have done their bit to help economic recovery and now it is time for governments to do more. This means that governments must take responsibility for their economic policies and responsibility for how these policies effect the economic prosperity of their nation both in the short term and the long haul. Governments should oil the wheels of the economy by reforming labor markets and undertaking a forceful program of "repair and reform" the BIS said this is the only way to bring about a lasting economic revival.

The Basel based organization was founded in 1930 and the BIS is the world's oldest international financial institution, and it has been called the "central banks' central bank". The BIS boast a 60-strong membership which includes the Bank of England, the European Central Bank, the US Federal Reserve, the People's Bank of China and the Bank of Japan. The BIS said central bank action across the world has borrowed "time for others to act, allowing them to repair balance sheets, to consolidate fiscal balances, and to enact reforms to restore productivity growth".

The BIS made it clear that it wants to see a return to "strong and sustainable growth" but believes it is time to end the "whatever it takes" approach. "Although six years have passed since the eruption of the global financial crisis, robust, self-sustaining growth still eludes the global economy", the report said. "During this time, central banks in advanced economies have been forced to support and look for ways to increase their degree of accommodation. But central banks cannot solve the structural problems that are preventing a return to strong and sustainable growth."

Last week the US Federal Reserve announced that it planned to stop its asset purchase program, this sparked a wave of market volatility. As the credit crunch hit, central banks tried a number of tactics to try to keep the money flowing, initially cutting interest rates and later adding in quantitative easing, buying in assets and releasing vast sums into the banking system. Now that the world was "past the height of the crisis", it is time for such interventionist policies to change. Central Banks must now begin to move back towards normal and sustainable policies.

Stephen Cecchetti, the head of the BIS monetary and economic department, said that the actions by the world's central banks had made it easy for the private sector to put off reforms and for governments to finance deficits more cheaply thanks to the low interest rates their policies had introduced. He went on to say that central banks must return their focus to maintaining financial stability and encouraging reforms, rather than "retarding them with near-zero interest rates and purchases of ever larger quantities of government securities".

Over the last several decades government growth has been on a tear. Whenever Washington goes about "tweaking" government policy, whether it be regarding an extensive spy program collecting data on all Americans, on immigration, or extending the benefits of over eleven hundred Federal programs to gay couples, the cost is always downplayed. I often hear optimistic statements, proclaiming America will in the long run come out ahead, these are based on projections of  "the growth that will be produced". This is more of the "head in the sand" kind of accounting that got us here in the first place. We deserve better.


Footnote; This post dovetails with many of my recent writings, for more I might suggest reading the article below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged,
                      http://brucewilds.blogspot.com/2013/05/the-bernanke-box.html