At a recent conference in Berlin, Morgan Stanley (NYSE:MS) Asia Chairman Stephen Roach said that the Federal Reserve is the “weak link” among central banks, and they could create another financial crisis, beyond the one they already created, by no taking the liquidity out of the U.S. economy in a sound manner.
The major concern of Roach is the Federal Reserve will wait far too long to tighten its monetary policy, which could have consequences of more asset bubbles being created.
Roach added that the Fed was the key villain in the sub-prime mortgage disaster because they were too fast in cutting interest rates and then too slow in bringing them back to normal.
“They need to be very early in executing their exit strategies,” Roach, a former Fed economist. “I take Mr. Bernanke at his word that he’s looking for an extended period of monetary accommodation, which, quite frankly, I find very worrisome in assessing the prospects of a next bubble and the next crisis.”
The key tool for Ben Bernanke and the Fed in the very weak U.S. economy is to keep interest rates low in hopes of stimulating business lending and growth. That largely hasn’t happened so far, the reason the Obama Administration has been foolishly pressing banks to do so.
I say foolishly because an enormous amount of business loans are ready to default in the latter part of 2010, and the banks know this will put a lot of pressure on them, making adding more business loans a completely stupid strategy to employ before it’s found out how bad the damage will be from existing business loans set to default.
Bernanke continue to communicate that he has no plans to increase interest rates any time soon, and will keep them close to zero for some undetermined time ahead.
The Federal Reserve and Bernanke took more criticism at the conference, as Nobel laureate Robert Mundell stated the Federal Reserve had mismanaged monetary policy because of its refusal to increase interest rates at a rate that would have coincided with the upward price movements of commodities.
What all of this sounds like is central banks from other countries are furious at the Federal Reserve for bringing central banking under scrutiny in a way they hate to be, as they prefer to do their business secretly, as the Fed itself does. It also seems to be a rant session to deflect attention away from central banks and their performance in general, to the terrible performance of the Federal Reserve.
Central banking, thankfully, is under fire, and the Federal Reserve is the focus of that fire, and the other central banks and their cohorts are afraid that fire could spread to their countries as well. Hopefully the resistance will continue.
In the end, central banking itself is a weak link in the global economy, and we would do better to eliminate them all and their misguided interference in the markets, which we all see the consequences of now.
