Central banks aren't even successful in keeping the appearance of financial stability

The praising of the central banks and their "power" to end recession, through the simple cutting of the interest rates and through quantitative easing, has eventually proved as empty as the "money" that they are printing and "managing".

The warnings from the prior years, especially the ones coming from the BIS (Bank for International Settlements), considered the "bank of central banks", have not been taken into consideration.

Now, "the emperor's nakedness" has become so visible, that no one can ignore it, not even the most important international financial publications or news agencies.

The most glaring case of "nakedness" manifests itself at the level of the Federal Reserve, as the American central bank is incapable of moving to the normalization of the monetary policy, even though the appearances were indicating that the world's biggest economy had escaped the specter of recession.

Well, the specter has returned, and the monetary stimulus means no longer exist, save for new quantitative easing programs.

Unfortunately, a new iteration of the notorious QE is no longer accompanied by optimistic expectations, but by a great fear, as shown in a recent analysis of the Group of Thirty (G30), on the importance of the lessons of the crisis for the central banks ("Fundamentals of Central Banking: Lessons from the Crisis", http://group30.org/rpt_68.shtml).

The Group of Thirty, created in 1978, is a private non-profit organization made up of notable representatives of the private and public sector, as well as from academia, according to the presentation on the institution's website, and its mission is "drafting the solutions for improving financial and economic stability". The president of the organization is Jean-Claude Trichet, former president of the European Central Bank, and honorary president is Paul Volcker, former chairman of the Federal Reserve in the 80s.

The study states that the "extremely vigorous reactions of the major central banks" were meant to "restore financial stability", as well as "stimulating aggregated demand". As for the first goal, it is stated that "it has been achieved for the most part", but "the economic turnaround has been prevented by the high level of indebtedness and the imbalances in the period that preceded the crisis".

Why haven't the stimulus programs worked within the promised parameters? Because of the "unusual uncertainty concerning the future of the fiscal and monetary policies", as shown by the G30 study. Furthermore, the uncertainty can be "exacerbated by unprecedented policies, which could be seen as acts of desperation".

yes dear readers, this is the point it has come to after so many years of zero interest rates and quantitative easing: a world that is afraid of the next day, because of an unsustainable burden of the public and private debt. A world in which, out of nowhere, new unjustified taxes appear, or even "money from helicopters", all in the name of the saving of an deeply unstable economic system.

The analysis of the G30 group also states that, even though "the long period of ultrarelaxed monetary conditions did not generate the inflationary pressures that many expected", it "could have contributed to the faulty allocation of the real resources in the economy, thus reducing the potential output and leading to unsustainable increases in the prices of financial assets".

If the names of the members of the organization, which includes numerous former and current central bankers, heads of major international banks and well-known names from the academic environment, weren't known, we would have thought that the organization has been "infiltrated" and "subverted" from its noble goals by "rebels" of the Austrian School of Economics (author's note: the list of members is on page 75 of the report).

Unfortunately, the "same unwanted forces have also been imported in the emerging markets", as shown in the G30 analysis, and leaving this monetary framework, which has been extended to a global level, now seems impossible.

"Most opinions seem to indicate the need to abandon the current monetary policies", but "the evaluation of possible exit scenarios shows major worries over the subsequent economic stability", the report further states. One of the major issues is represented by the very level of debts, "which in some cases will be impossible to repay". Under these circumstances, "the natural stance is to maintain the status-quo".

But how much longer can such a fragile structure be supported, especially since the first signs concerning the increase in financial instability have appeared?

This phenomenon surely comes as no surprise for the G30 members, whose report also states that "the policies pursued by the central banks since the beginning of the crisis have contributed essentially to restoring the appearance of financial stability".

So after trillions were printed, not even the appearances have been truly saved? Yes, because "transforming the appearances into reality involves resolving the fundamental issue of the very high debts".

The conclusion of the authors of the report is that the central banks can not restore on their own the health of the economic and financial system, as it takes "the action of the governments to bring the final resolution of the crises".

Unfortunately, the actions of the governments and of the central banks in the period that preceded the crisis have been the leading factors of the current problems, and the recommendations from the study of the Group of Thirty shows that, on the level of the authorities, no one has learned the lessons of the crisis.

Albert Einstein once wrote that "we can not resolve problems using the same type of thinking that created them". It seems that the current authorities want to contradict him and to prove that the debts that impossible to repay are not an insurmountable obstacle.

For another type of thinking and a different paradigm of development there is no courage nor willingness, for now.