from Silver Doctors:
The way forward should be clear, most of all for the United States…
by Larry White from Lone Star White House
Readers here may recall that we have featured some articles by Robert Pringle (The Money Trap Blog) from time to time. Mr. Pringle has had a long and distinguished career working with central bankers from around the world. Here are a couple of extracts from his background information
“In 1990 he founded Central Banking Publications, a financial publisher specialising in public policy and financial markets. Central Banking journal, which he edited for 20 years, has subscribers in 120 countries including the great majority of the world’s central banks.” . . . .
“From 1979 to 1986 he was the first executive director of the Group of 30, an influential think tank based at the time in the World Trade Centre, New York (it has since moved to Washington, DC). For the G30, Robert co-authored pioneering studies of the foreign exchange and interbank markets, and on IMF borrowing from the private markets, and the emerging profession of official reserve management.”
Recently, Robert Pringle released a new book that I think many readers here would find interesting. The Power of Money is an in depth look at the past, present, and potential future of money and its impact on society. His observations in the book come from decades of directly observing the impact of money on society from the inside of the monetary system we use today.
Obviously, Mr. Pringle is one of the leading experts in the world on central banking and the issues faced by central banks. In addition, he has kindly shared his experience and knowledge with me from time to time providing input on the kinds of issues I attempt to follow on this blog.
I asked him if he would like to participate in a Q&A style interview to discuss his thoughts on some of these issues based on his decades of experience inside the system. He agreed, and therefore readers here will get the opportunity to benefit from his knowledge and personal experiences working alongside some of the most well known central bankers from around the world.
A: “Ever since my teens I wanted to do something with international reach. At the same time, I had an aversion to large organisations, especially governmental organisations such as the United Nations. This aversion extended even to universities. So when I received an offer from Berkeley, University of California, as an assistant to a professor with prospects of research and secure employment, I rejected it after I got impatient with the ton of forms they expected me to fill in. Yet, it was the leading academic centre for sociology, the subject I was interested in, in a stunning location as well as the world centre of radical thought. My whole life would have taken a different course if I had accepted the offer. Instead, after graduating in economics at Cambridge, I went to the London School of Economics to study sociological theory and the implications for economics. But I dreaded the prospect of another three years study to obtain a PhD so I applied for and got a post where I could learn the craft of economic and financial journalism. I liked it – especially the opportunity to get to know leading figures from the worlds of economics, banking, central banking and politics – and to write about what they were doing. The 1970s and 1980s were exciting, pivotal times for anybody interested in the character and fate of our societies and the drivers of social and economic change. Soon I found my vocation as an editor and travelled the world meeting and exchanging views with influential people without being part of some awful bureaucracy like a central bank, inter-governmental organisation – or university!”
A: “I was educated into Keynesianism – I studied Keynes at King’s, his own college, with some of his great disciples such as Nicholas Kaldor and Joan Robinson. Ironically, however, though Keynes was a monetary economist, I was taught little about money and banking at Cambridge. All that came when I had to start writing about it. In the 1970’s as editor of The Banker (a monthly journal) I became a passionate monetarist, as traditional stop-go ‘demand management’ policies were failing, and was privileged to be one of a close circle in a group started by Karl Brunner and Allan Meltzer that tried to disseminate monetarist thought in Europe. This was a time when leading economists and commentators believed you could raise the long-term rate of growth by keeping the pressure of aggregate monetary demand continuously at a high level – complete nonsense. When I went to the United States to set up the Groupof 30, I was shocked to find many unreconstructed Keynesians on the group. They let their aversion to President Reagan infect their economics; they basically missed the whole point of the Volcker revolution in monetary policy.
I disliked the way that governments, central bankers and mainstream academics then in the 1990’s turned the insights of monetarism into the doctrine of inflation targeting – an effort to do without money in the models used to frame policy choices. This would leave too much room for discretion, which I thought would be abused. I also objected to Alan Greenspan’s use of Fed powers to support the banking system in the crash of October 1987 – it started the era of extreme moral hazard.
We live with the results of the use of excess discretion and lack of rules in these two fields of policy-making. They are not good results.”
Money has to change to reflect the needs of a changing society; at its best, it embodies and projects the best aspirations of that society. Money is part of the effort to better the human condition. True, it is foolish to expect too much from it. It cannot eliminate the business cycle. It often needs to be left to take its natural course. There are worse evils than a gradual, long drawn-out deflation. People adjust as long as they have confidence in the long term stability of the monetary unit.
The state should define the monetary unit – what counts as money in a given territory or monetary space and let the private sector create money – as much as society needs – to the standard. There is no such thing as a perfect money, ideal for all times and places; the search to realise such a dream can do more harm than good.”
A: “The central bankers I have known have been decent, honourable and conscientious. Events thrust their institutions into positions of high authority and status. Even the smallest central bank makes decisions of crucial importance for its country and people. Their elevated position exposes them to high risks and what they often call ‘headwinds’. This is an understatement.
If central banking were classed as an Olympic event, it would join such sports as surfing, skateboarding, karate, and rock climbing, at the extreme end of the sporting spectrum.
Central banks served as midwives of our current monetary and economic regime. They helped to shape its present form.
Now they service and maintain critical financial networks that span the globe. Far from being detached bystanders, they have facilitated revolutionary changes – changes that affect the life chances of men and women everywhere. We are all inter-connected through this intricate and ever-expanding monetary spider-web.
They have managed multiple crises as agents of governments. The costs have been high, but not catastrophic – not yet.
What central bankers evidently do not know is how to prevent crises from happening in the first place. They claim to have learnt from experience, but the public is rightly skeptical. To what extent their policies are actually responsible for social ills such as rising inequality, stagnant real living standards in many countries, sluggish investment, growing monopoly power (notably of Big Tech) rising popular anger and disrespect for elites and ‘experts’ is arguable. I suspect they have been a significant factor. President Trump plays a “Punch and Judy” show with Fed chair Powell but that’s what it is – a show. Sound money is as far away as ever.”
Q: Those comments about President Trump and Chairman Powell are fascinating. My take is that you are saying that while they argue over relatively more minor issues in a media headline grabbing way, the big picture of the need for major monetary system reform continues to be ignored. Is that an accurate take away from your thoughts above on this?
A: “The President’s attacks on his own appointee at the Fed for keeping interest rates “too high” raise the whole question of the policy latitude given to the Fed by custom – an important issue. But yes, while this media circus goes on, the underlying problem of the faulty apparatus of policy making, indeed the whole way that current monetary arrangements operate – at the international as well as domestic national levels – and how they generate crises, is overlooked.
In this context, I hope that President Trump will send his nomination of Dr Shelton to the Fed’s Board of Governors to Congress and that the nomination will receive Congressional approval. Dr Shelton would bring a much-needed breath of fresh air to the Fed’s decision-making bodies. While I do not favour a return to a gold standard it is time for a proper debate about the anchor for money. There is no effective anchor at present. In other words, if given the opportunity, Judy Shelton would open up the whole issue of the future of the monetary regime.”
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