If you’re interested in monetary policy and related capital market issues, as seen through the eyes of a retired market practitioner and Central Banker, you have stumbled across the right blog. I hope you find some insight here, and if you are a bit of a skeptic, some solace as well.
Experience can be over-rated, but in the case of this blog, I am relying on it extensively. I started and ended my career at a central bank as a trained economist who focused on capital markets, specifically fixed income securities and derivatives. For 15 years in between, I worked in the belly of the beast, first at a major bank and later with an investment dealer. I mostly bought and sold government bonds and derivatives, trying to make money trading on minute changes to their prices. When I returned to the central bank from the trading desk, my private sector exposure and my network of contacts made me an ideal candidate to move into a liaison role between the central bank and those in capital markets. As a result, within the institution, I was labelled as a “markets’ guy”. I reached out to many of the stakeholders in the capital markets, hearing their views, answering their questions and assuring them that all was well and that whatever crisis existed at the moment had been anticipated (of course) and policy makers would be responding appropriately, when necessary and in time.
Sitting in this chair, I felt it was my duty to relay the views that I heard on the 'street’, in particular the ones that countered and tested the prevailing internal consensus. It was a great job. You ask questions, you listen, you analyze, you compose, you report back. In theory, they listen, they analyze, they include feedback within future decisions. In practice, however, for many years, it seemed to be viewed just as “nice to know” information as markets were not that important of an input in their models. Envy of “less educated” but higher paid individuals and the ever-loving drive for academia to rule the institution placed a high hurdle on the admissibility of market input. If the views from the market participants wasn’t what central bankers had expected or what they wanted, the information was met, at best, with a nod, and usually just with silence. After all, the opinion of market participants was obviously biased by their desire to make money. Moreover, what could these market people possibly know about monetary policy and the functioning of markets. They had not written any papers on either topic, at least not seen in a respected journal. And, some of the things they were saying had just not yet been seen in the data.
Either in religion or central banking, it is very difficult to penetrate the intellectual and philosophical wall put up by a self re-enforcing group. When everyone who is worth listening to, in their minds, views the economy the same way, by using the same intellectual framework taught at the best schools, it is extremely difficult for them not to apply the same solutions to the same problems regardless of external feedback and results. I believe Einstein had a quote for that type of behaviour. ("You're an idiot.") By challenging the status quo, and reminding people that there may be other opinions and solutions, there is repetitional risk that ultimately influences one’s internal standing. Hence, sadly, the status quo remains largely unchallenged.
The good news? My position let me hear both sides and come to understand what the other side is missing.
My desire for this blog is to discuss ongoing monetary policy and other market related issues and to challenge the internal “norm” with doses from another perspective, most likely the market’s. A wise friend used to say that the monetary authorities “don’t let facts get in the way of a good story”. Hopefully, we can keep our eyes on the facts.
I believe central bankers would like to be seen by the public as the all knowing Wizard of Oz. Like the movie, the truth is that behind the curtain is just a small group of people, supported by the theory-driven munchkins, looking out at the economy and pulling the one lever they have. Wizards, they are not. I propose to call this blog site, “The wizard-at-odds.”
Thanks for reading.
No comments:
Post a Comment