The unrepentant...

It’s increasingly harder to find an economist who would admit openly they were wrong. When sometimes I see them speaking in public it occurs to me they would sooner try to convince me that black is white and the other way round than concede their mistakes.

Today’s The Wall Street Journal Europe raises the vexed issue of Ben Bernanke’s opinion on the Fed’s role in fuelling mortgage bubble in the United States – a view many economists disagree with. Loose monetary policy was one of the major causes of collapse, not the only one, but saying as Mr Bernanke that Fed’s policy “does not appear to have been inappropriate” sounds at least absurd. Keeping the interest rates too low for a long time does not appear reasonable. Once, in a difficult situation they could have been slashed, but should have been raised gradually as soon as the signs of recovery came up.

The commentator’s note was quite uplifting to me. Reading this is a must for an economist and everyone who is interested in economy and its mechanics. It clearly presents what I described in my post a month ago, that it how cheap money fuels irrational, unfettered speculation. Quite probably all bubbles would rise without help from monetary authorities, but their scale would have been much smaller and so the last downturn would.

Conceivably, Mr Bernanke is trying to justify what the institution he is chairing is doing is right and justified. He consistently ignores the threat of inflation and his speeches are more important for financial markets, not for the real economy.

Another noteworthy text from Polish finance minister comes in Financial Times. Mr Rostowski not only warns there against too loose fiscal policy, but also outlines a remarkable picture of market driven by fear and greed. As far as I’m concerned financial markets cannot run properly without fear. Fear keeps them in balance, whenever it is eliminated it gives way to greed and we have seen what it leads up to. Mr Rostowski openly criticises the Greenspan put idea and tells a scenario of next arising bubbles.

I believe Greenspan put was one of the greatest distortions of free market. If someone decides to invest money in risky securities, he should not expect any help when the worst scenario comes to a pass. As even wikipedia entry shows, this policy tool was not targeted at real economy, but to prop up distressed financial markets. Who should the central bank favour? Speculators or the real economy entities – businesses and customers? Now also the speculators benefit the most from extremely low interest rates. Fortunately, more and more economists foresee the possible relapse of the crisis subsequent from repeating the same mistakes.

Meanwhile in Poland. Newly appointed member of monetary policy council calls for hikes in interest rates. At long last! Let’s jack it up!