The Conversation

Most fundamentally, the question is whether people are fully understanding of the limits to central banks’ abilities. It is, to repeat, not to be critical of actions to date to wonder whether private market participants, and perhaps more importantly governments, recognise what central banks cannot do. Central banks can provide liquidity to shore up financial stability and they can buy time for borrowers to adjust. But they cannot, in the end, put government finances on a sustainable course and they cannot create the real resources that need to be found from somewhere to strengthen bank capital. They cannot costlessly correct earlier misallocation of real capital investment. They cannot shield people from the implications of having mis-assessed their own life-time budget constraints and as a result having consumed too much.

            – Glenn Stephens, Governor, Royal Bank of Australia

Serendipity lives and this quote came on the cusp of a long, rambling conversation with Middle the other evening after watching Will Ferrell’s The Campaign.  One of the perks of living in this household is that as the kids get a little older, I’ll occasionally permit them to watch an R-rated movie with the proviso that I have the opportunity to pause and explain a few things.  First on the list was that the film’s fictitious Motch Brothers – Dan Aykroyd and John Lithgow – are satires on the real-life billionaire Koch Brothers, who muscled into the nascent Tea Party Movement for their own personal benefit.  Second on the list was the plot twist by the brothers to purchase up the congressional district and then import Chinese workers; for the brothers, it was a win-win with no shipping costs and almost slave labor wages. 

But it was at the China juncture that the conversation took flight as it turned

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