Walter Kirn, novelist, essayist and critic, presents a memoir of having been gulled by impostor Christian Karl Gerhartsreiter, a/k/a "Clark Rockefeller" in the June 10 & 17, 2013 of the New Yorker.
While I waited for it, drinking cold coffee in my messy office above a Western-clothing store, I asked Clark what he did for work. My professional hunch was that he did nothing at all, which is how I was thinking by that point, as a novelist who was currently stranded between books and was far too caught up in that other fiction, a life.
"At present, I'm a freelance central banker," he said.
I asked him to explain.
"Think of a country's money supply as a lake or a river behind a dam," he said. "Think of me as the keeper of that dam. I decide how much water flows over its lip at what velocity, and for what duration. The trick is to let through sufficient water to nourish and sustain a country's 'crops,' but not so much that it floods the fields and drowns them." I later ran this metaphor past someone better equipped than I was to judge its merits, who deemed it "brilliant."
"Which countries," I asked Clark, "do you do this for?"
"At the moment? Thailand."
"That's a lot of responsibility."
"Which countries before Thailand?"
In Kirn's exquisitely turned phrase:
The classical gold standard is based on rules with intrinsic integrity.
The "pretence of knowledge," in Hayek's immortal phrase, intrinsic in the fiduciary management of a currency, really does present as a "weakness for monogrammed hustlers full of tea and toast."
Bravo to Walter Kirn.
Apparently, the other central banks of the world have not all necessarily gotten Ben Bernanke’s memo about transparency. Some folks still must read tea leaves rather than transcripts. The Financial Times’ Alice Ross and Claire Jones recently noted: “Traders of Japan’s currency became unusually fond of the Tokyo night air last year. Long after their colleagues had gone home, the traders left the grand investment houses that dominate the skyline of the Marunouchi financial district and strolled north for a block or two.
On the other side of the world, transparency took another step backwards. “The Bank of England will prevent members of its interest rate-setting committee from publishing individual opinions on the economy despite a review of its procedures calling for greater transparency,” wrote Phillip Inman, economics correspondent for the Guardian. “The Bank said a ‘collective forecast’ will remain the centrepiece of the monetary policy committee's monthly reports, effectively barring members from explaining their own views on the likely path of economic growth, inflation and unemployment.
A few days later, the Telegraph’s economics editor Philip Aldrick reported on some steps forward on transparency: “Responding to three reviews into its operations last year, the Bank pledged ‘to provide quantified information about the key central judgements underlying the forecasts’. The new information is expected to be disclosed for the first time when the Bank updates its outlook in the August Inflation Report.”
As foreign reserves pile up in central banks, noted the Financial Times, secrecy continues to reign. “ Little is know about the reserve managers at the BoJ and their counterparts in central banks around the world, buy. Trying to fathom what secretive central banks do with their huge forex reserves – Japan, the second-largest reserves holder, had its $1.28tn at the end of last year – has long been a headache for traders and investors.”
That is the elephant in the room. And it is the elephant that continues to grow along with that pile of hay called quantitative easing.
Bubble, bubble, toil and trouble. The stock market is up. The reason is clear. The London Telegraph’s Jeremy Warner wrote about the recent run of “central bank money printing. This may or may not have prevented a much deeper economic collapse, but it has certainly put a rocket under asset prices.
We know from the experience if prior irrational exuberance that what goes up...can come down.
Transparency is good. Indeed, central bank transparency is a mantra these days. Back in spring of 2012, Narayana Kocherlakota, president of the Minneapolis Fed observed: "While I think that we should all take great pride in the recent improvements in FOMC communication, there is still more that can be done...Communication, while always important, is especially so today."
So consider the minutes of the FOMC meeting in January: Several participants emphasized that the Committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved. For example, one participant argued that purchases should vary incrementally from meeting to meeting in response to incoming information about the economy. A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred. Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in the labor market outlook had occurred. Got that.
The Economist's Free Exchange columnist, Ryan Avent, apparently didn't. He subsequently observed: "It is hard to think of an organisation more vocally committed to clear communication while so manifestly failing to communicate clearly than the Federal Reserve. The latest exhibit comes in the form of minutes to the Federal Open Market Committee's January meeting, which landed yesterday and sent observers everywhere scratching their heads. Minutes are not an ideal means of communication indeed, they are they more for the sake of transparency than for policy implementation. But because the Fed's broader policy framework remains so muddled markets and journalists feel the need to plumb the cryptic minutiae for hints of what is to come."
Although this transparency is intended to help reveal the Fed's intentions and thereby influence the market's expectations, this is all a bit of a shell game because the Fed prefers to have a good impact on expectations even as it is confused about the actual impact of its policies.
While essentially urging the markets not to worry, the Fed s FOMC worries and sends mixed signals about the expected impact of its policies.
Trust us. Watch what we re doing. Just don't expect us to agree about what we re doing. We don't.
That's not a monetary standard, unless you like standard confusion.
Like Charles Dickens’ Scrooge, we have met the Ghost of the Past and the Ghost of the Present. We know what horrors the central bankers and their economist friends have wrecked. “External heat and cold had little influence on Scrooge,” wrote Dickens. “No warmth could warm, no wintry weather chill him. No wind that blew was bitterer than he, no falling snow was more intent upon its purpose, no pelting rain less open to entreaty."
What we don’t yet know is the future, because unlike Scrooge, we have not yet met the Ghost of the Future. "Ghost of the Future," exclaimed Scrooge, "I fear you more than any spectre I have seen. But as I know your purpose is to do me good, and as I hope to live to be another man from what I was, I am prepared to bear you company, and do it with a thankful heart. Will you not speak to me?"
We know not the future, but we do know what the future might post for us were we to return to the gold standard.
As Dickens wrote: "Again the Ghost sped on, above the black and heaving sea – on, on – until, being far away, as he told Scrooge, from any shore, they lighted on a ship. They stood beside the helmsman at the wheel, the look-out in the bow, the officers who had the watch; dark, ghostly figures in their several stations; but every man among them hummed a Christmas tune, or had a Christmas thought, or spoke below his breath to his companion of some bygone Christmas Day, with homeward hopes belonging to it. And every man on board, waking or sleeping, good or bad, had had a kinder word for another on that day than on any day in the year; and had shared to some extent in its festivities; and had remembered those he cared for at a distance, and had known that they delighted to remember him."
As it did for Scrooge, the time has come for us to change direction. “Lead on!” said Scrooge. "Lead on! The night is waning fast, and it is precious time to me, I know. Lead on, Spirit!"”