Nearly half a decade on from the financial crisis, many troubling weaknesses in the global economy remain unaddressed. Deleveraging is occuring dreadfully slowly in many rich countries. “Imbalances” have scarcely been diminished. Monetary policy has propped up economic growth, temporarily buying time for broader structural reforms that governments have failed to deliver. The scope for central banks to do more is limited and the risks of further action are rising. Meanwhile, government debt is a huge threat, particularly given continued problems of undercapitalised banks in some economies. Somehow, governments must return to budget surplus in order to maintain market confidence and create room for future bank rescues, while remaining conscious of the potential blow to growth from dramatic short-term austerity. The immediate future is all sackcloth and ashes.
The overarching theme is quite simple: central banks have done what the economic situation has called for and then some, and they should not and cannot be expected to do much more. Instead, other economic policymakers must finally heed central bankers’ recommendations for how to clean up their messes, fiscal, structural, and otherwise. It strikes me as a deeply mistaken view of the state of the world economy and the proper role of the central banker.
— Free Exchange: “The Twilight of the Central Banker”