When Central Banks roamed the Earth

Living in interesting times

My parents lived at a time when smoking was considered good for you! It has been said that in thirty years, sugar will be considered as dangerous as smoking and people will look back on how much we consume and be horrified.

“May you live in interesting times” is known as the “Chinese Curse” despite the fact that no basis can be found in Chinese culture. It implies that un-interesting times are dull and boring and that certainly applies in the foreign exchange market. No one considers the human cost of, for example, the U.S. employment report. It’s just a piece of data to traders but every job gained or lost has involved the joy of someone finding employment or the misery of losing their job.

There will always be threats of regional conflicts escalating into global apocalypse but compared to the second half of the twentieth century that potential for Armageddon has, thankfully, receded. Indeed, the nature of conflict has changed totally since 9/11.  George W Bush knew that America had to declare war after the planes hit the World Trade Center but had no idea on who!

Rates go up, Rates come down.

Central Bank actions have prompted most of the more “interesting times” we have seen in modern economic history. Dire warnings over growth, inflation and global collapse have emanated from many of the more prominent Governors, Chairmen and Presidents but life goes on and we can all still tell the tale.

The “oil shock” of ‘73, the U.K.’s forced exit from the ERM, LTCM and Subprime (with all its knock-ons) have seen rates rise and fall to extreme levels.

Now, we have an ECB President in Mario Draghi who may leave office never having raised interest rates. That will either be a seen as the dawn of a new era, brilliant management of the new paradigm or simply incredibly good luck. Only time will tell.

As far as the subject economics is concerned, we do indeed “live in interesting times with Central Banks to the fore. Quantitative easing, Brexit and the “Eurozone experiment” each bring their own dilemmas. The cast will change again completely as the Japanese election could herald a new, expansive, monetary policy and the Heads of the Bank of England, European Central Bank and Federal Reserve change.

And, there is still Brexit!

Bank of England Governor, Mark Carney had, presumably, hoped that in the leadup to this week’s EU summit sufficient progress would have been made in Brexit talks to allow the Heads of State to agree to move to phase two. Such an announcement would have removed one of the major headwinds facing the U.K. economy and he would have been able to vote for a rate hike to both shore up Sterling and lower inflation.

They say it is better to be lucky than good but Carney has had to rely on being good as his tenure, which will end a little after Brexit supposedly happens, has been littered with bad luck and good decisions.

A Hard Brexit is becoming more of a reality although this week the EU appeared to finally accept that the U.K. is serious about walking away from negotiations with no settlement. While totally unable to acquiesce to the U.K.’s desire to start discussing the future relationship, they are at least prepared to acknowledge that there will be one.

Little Emmanuel Macron, the living embodiment of a “Napoleon Complex” has got all feisty over the lack of progress without realising that the parlous state of the French economy, hiding behind EU data, would get much worse when France has to increase its contribution to the EU budget. Remember how militant French farmers are? You ain’t seen nothing yet!