Former Fed Economist Blasts Central Banks'' ''Frankenstein Lab'' of Policy
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By Adam Creighton
Jason Cummins, now chief U.S. economist and head of research at hedge fund Brevan Howard Inc., said proposals to abolish cash, extend negative interest rates and tinker with inflation targets -- what he called "the Frankenstein lab of monetary policy" -- would be rejected by a public "fed up" with monetary experts.
Mr. Rogoff, an actual chess grandmaster and former Federal Reserve Board economist, later told The Wall Street Journal that his book talked about getting rid of large bills, not all cash, noting that Canada already has taken away the C$1,000 bill and that the 500-euro note is being phased out. "You don't go writing a book for what's going to happen tomorrow, but what'll happen long in the future," he said.
Mr. Cummins had been invited to comment on a policy paper that recommends central banks redouble their efforts to stimulate economies through asset purchases, also known as quantitative easing, and by pushing interest rates well below zero -- polices that have been pursued with mixed results in Japan, Europe and the U.S.
Mr. Cummins, who ran macroeconomic forecasting during his days as a senior Fed economist, apologized and instead launched a self-described "rant" on the failure, and potential demise, of independent central banking. "You are not going to have independent central bankers in the next 10 years if you keep on this path," he warned.
He said the general public would have been "aghast" at the seeming cluelessness of the monetary policy experts gathered at the Kansas City Fed's recent conference in Jackson Hole, Wyo.
Mr. Cummins said the links between central banks and real economic variables, such as growth and employment, had broken down; and central banks had failed even to achieve their targets for consumer price inflation.
"The economy has rolled over and died in an environment when financial conditions have never been easier," he said. "People aren't consuming, businesses aren't investing, they aren't buying houses even with a 3.5% mortgage rate," he said, warning that the "inchoate anger of the populace" might ultimately see a vote for a "demagogue that would make Andrew Jackson look like Abraham Lincoln."
"Worrying about whether the Fed will raise rates in September is insanity," Mr. Cummins said. "Why not sideline discussion about raising interest rates...and let's just wait till inflation is actually 2%?"
Mr. Cummins said the public had been tricked into thinking central banks are consequential. "The maestro culture created by [former Fed Chairman Alan] Greenspan has been one of the worst features of central banking," he said.
Mr. Cummins -- who is also chairman of the U.S.Treasury'sBorrowing Advisory Committee, which advises the government on the state of the economy -- said central banks' success at keeping inflation low before the financial crisis had been good luck. "We banked it as if we were the smartest people on the block; we aren't."
"My biggest worry is that the public will conclude that...capitalism is just socialism for the rich," he said.
(END) Dow Jones Newswires 09-14-161844ET
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