Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

European Integration Is Dead, Long Live Monetary Cooperation

Politics / European Union Jun 26, 2016 - 02:46 PM GMT

By: MISES

Politics

Carmen Elena Dorobăț writes: The news of Britain’s decision in the EU referendum—and the subsequent resignation of David Cameron—created a wave of confusion and fear on financial markets. The pound sterling dropped to its lowest level since 1985, and the London stock market opened with a FTSE 100 lower by 8.9% compared to the day before. Debates were revived on what sectors of the British and European economy will be affected, what new policies must be designed to protect them, or how long and painful will the Brexit-driven recession be. 


Amidst a sea of disagreements on all these points bound to keep debates alive for the time being, one policy decision was made that was not contested—nor is it likely to be—by either the winning or the losing side in Britain, or by any other administration around the world. As the Bank of England announced its decision “to provide more than 250 billion pounds ($347 billion) plus "substantial" foreign currency liquidity and… to take additional measures if needed”, no lively disagreements arose around the consequences of this decision, even as markets seemed to have quieted down after the initial shock. The European Central Bank and the Bank of China followed suit with similar promises. The Swiss Central Bank, the more conservative of national monetary authorities, rushed to weaken the Swiss franc and deter investors from seeing it as a safe haven.

This underscores three important aspects of the present world economy: First, while regional political integration may have lost momentum, monetary policy cooperation at a global level is alive and well. Second, the latter’s detrimental effects on the economy are much more perverse and much less observable than of other official intergovernmental agreements—and thus less likely to attract opposition, or even any attention. Third, and as a result, central bank cooperation, especially in crisis circumstances, is in fact more likely to attract support on all sides, and thus to cement monetary authorities in a position of ‘market makers’.

International central bank cooperation was long sought after since the 19th century as a way to allow for ‘monetary policy independence’, that is, domestic monetary expansion and artificial lowering of interest rates without international repercussions such as balance of payments crises. Rothbard (2008, 111) explained that central banks “coordinate monetary and economic policies… [in order to] harmonize rates of inflation, and fix exchange rates.” It was thus central bank cooperation that paved the way for the Nixon shock in 1971 and the present international fiat money system. Through central bank cooperation, the large bank bailouts which followed after the 2008 financial crisis were absorbed by the global financial system instead of burdening particular national economies. It was the concerted international action of monetary authorities which then precluded global markets from properly adjusting after crises, nipping in the bud capital outflows that could have destabilized the fragile financial systems of inflationary countries and their trading partners, and prolonging the recession.

The aftermath of Brexit is unfortunately no different. Every time central banks are handed the opportunity to ‘soothe’ markets, they also quietly expand their mandate and their grip on the economy. Decades of inflationary monetary policy have also created dependent financial markets, hanging on to the Fed’s, ECB’s or BoE’s every word, awaiting and welcoming their poisonous interference to artificially fuel their growth or prevent a plunge. Central banks are swiftly moving away from being a ‘last resort’. They are a first and main resort for perpetuating our hampering governments, even in the face of otherwise momentous changes.

Western European governments may have lost an important battle on the official integration front, but they are still far from losing the war on their citizens’ wealth.  

By Carmen Elena Dorobăț

Contact Carmen Elena Dorobăț

AwardsO.P. Alford III Prize in Political Economy

Carmen Dorobăț has a PhD in economics from the University of Angers, and is assistant professor in International Business at Coventry University.

http://mises.org

© 2016 Copyright Ryan McMaken - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in