The Federal Reserve’s second round of quantitative ended in June, but Britain’s central bank today announced it was reviving monetary stimulus. “The Bank of England voted on Thursday to buy 75 billion pounds more in assets to shield Britain’s economy from the euro zone debt crisis and keep the faltering recovery going,” according to CNBC.
It seems that Adam Posen’s counsel has some resonance after all. Last month Posen, an American economist who sits on the Bank of England’s monetary policy committee, warned in a speech:
Both the UK and the global economy are facing a familiar foe at present: policy defeatism. Throughout modern economic history, whether in Western Europe in the 1920s, in the US and elsewhere in the 1930s, or in Japan in the 1990s, every major financial crisis-driven downturn has been followed by premature abandonment—if not reversal—of the macroeconomic stimulus policies that are necessary to sustained recovery. Every time, this was due to unduly influential voices claiming some combination of the destructiveness of further policy stimulus, the ineffectiveness of further policy stimulus, or the political corruption from further policy stimulus. Every time those voices were wrong on each and every count. Those voices are being heard again today, much too loudly. It is the duty of economic policymakers including central bankers to rebut these false claims head on. It is even more important that we do the right thing for the economy rather than be slowed, confused, or intimidated by such false claims.
One can only wonder if any of this will rub off on Mario Draghi, the the-soon-to-be-installed president of the European Central Bank. Or Ben Bernanke, for that matter.
Meanwhile, one can argue that the current ECB leadership isn’t totally oblivious to the challenges that confront the euro countries. At least the ECB didn’t raise rates today.