'Most ruinous central banker': A Greenspan by another name?

08 Feb 2013 | 14:37
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Société Générale strategist and permabear Albert Edwards has launched a scathing attack on central bankers, warning incoming BoE governor Mark Carney could follow in the footsteps of Alan Greenspan to be a "ruinous" bank leader.

Edwards criticised Carney following his address to the Treasury Select Committee on Thursday where he hinted at more aggressive measures to stimulate the flagging UK economy when he takes over the post from Mervyn King in June.

"Carney is willing to be much more aggressive - George Osborne will be pleased. In his evidence to the Treasury, he repeated his idea that if existing QE measures fell short, central banks should consider shifting to targeting nominal gross domestic product, which would allow them to respond much more aggressively to a downturn in economic output and place as much weight on supporting growth as reining in inflation.

"I wish Carney as the new Bank of England governor the very best of luck. And if, as I suspect, monetary mission creep accelerates under his governorship, he will need all the luck in the world. In the wake of the credit crisis, Alan Greenspan's post-crash accolade - ‘probably one of the most ruinous central bankers ever' - may even be up for grabs," said Edwards.

"From everything I have read so far, I fear that in the fullness of time he will have more similarities with Alan Greenspan than just this unwanted accolade, and his legacy will be equally destructive."

Edwards also criticised Mervyn King and Federal Reserve chairman Ben Bernanke for being consistently dishonest and giving "false reassurances" over the effects of QE.

"King said the bank could offset any renewed economic weakness by pumping more money into the economy. Yet despite his confidence, he has no idea whether further QE will actually work. Both King and Bernanke are dangerous. Many commentators who correctly foresaw the crisis, unlike King, believe that in a balance sheet recession, monetary policy has limited effectiveness and fiscal policy should stay loose.

"Policymakers, including Mervyn King, are being dishonest with the general public in projecting the appearance of knowledge and control. They simply do not know if further QE will be effective."

Edwards is paticularly concerned about the effects QE will have on inflation and said, although Bernanke and King continue to believe they have inflation under control, he is not so sure.

"In a statement, Bernanke's said he is 100% confident he can control inflation. This is exactly the sort of statement that has made me really worried that central bankers have learnt none of lessons of the financial crisis. Humility and fallibility are the unlearnt lessons from the credit crisis.

"King's assertion that because the QE to date has not yet produced rapid inflation must mean that it will never produce rapid inflation is just plain wrong. He simply cannot know.

Turning to US equities, an area which has seen strong inflows and performance in the past year, Edwards warned the region is actually in bear market territory.

"US equities in my own - and many other commentators' - view are still grotesquely overvalued and in the midst of a structural valuation bear market.

"Yet the pressure for investors to participate and buy overvalued risk assets is huge while QE continues apace. Indeed central bankers admit that this is one of the main ways in which they see QE boosting the economy."

Categories: Economics / Markets

Topics: Socgen asset managementBank of englandFederal reserveMervyn kingBen bernanke

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