Carrington's Whalen: Central Banks Telling a 'Big Lie' That They Can Improve Economies
By Michelle Smith (Read story on MoneyNews)
May 23, 2013
Betting that central bankers will re-inflate the global economy is a zero-sum game, according to Christopher Whalen, executive vice president and managing director of Carrington Investment Services.
Whalen believes Federal Reserve Chairman Ben Bernanke needs to come clean and admit that central bankers cannot improve the economy.
"The big lie among all the central bankers is that they can do something to help grow jobs and get the economy back where it was during the boom," Whalen tells Yahoo.
He claims that the boom era was a time characterized by "a lot of extraordinary circumstances; easy credit being one of them.
Now, we are in a similar place as in the 1920s, he says. World War I boosted the economy with "credit creation," he explains, but that was followed by a decade of deflation, known as the roaring 20s, which "was not a good time for the average American."
Pointing to current conditions and central bankers' efforts, Whalen says, "Despite everything they've done for the past five years, the pool of credit is shrinking." In fact, he adds, some nations are experiencing deflation.
But, his criticism is not limited to the Federal Reserve. He believes central banks around the world are trying to lead people on by having them believe that they have solutions in their toolbox. And he accuses them of committing "deliberate acts of warfare."
He points to Japan, "a high cost platform in Asia," and its decision to devalue to the yen as a so-called inflationary effort. Other Asian countries are looking at Japan and saying we are going to do the same thing, he tells Yahoo.
Global competition, technology and a range of factors are forcing countries to essentially compete with one another.
In the current environment, "it's hard not to have a trade war," he adds.
In testimony before the Joint Economic Committee of Congress on Wednesday, Bernanke stated, "Because only a healthy economy can deliver sustainably high real rates of return to savers and investors, the best way to achieve higher returns in the medium term and beyond is for the Federal Reserve — consistent with its congressional mandate — to provide policy accommodation as needed to foster maximum employment and price stability.
"Of course, we will do so with due regard for the efficacy and costs of our policy actions and in a way that is responsive to the evolution of the economic outlook," he added.
Ahead of the chairman's testimony, New York Fed President William Dudley claimed that the Fed needs a little more time to evaluate the economic environment, as conflict created by the contrast of budget cuts and economic improvement seems to be clouding their view.
"Three or four months from now I think you're going to have a much better sense of, is the economy healthy enough to overcome the fiscal drag or not," he told Bloomberg TV.