Some central bankers are just “better” than others. Or perhaps some are just more blameless than others. I was watching Bloomberg very early Thursday morning eastern time when the news of the SNB decision to end the euro peg came down; and I heard hints of what sounded like a giant crash in the commentary for the rest of the morning.
Scott Sumner had this to say:
I sometimes receive back channel communication from very-well informed people in Europe. Believe me, just as with the earlier nonsense in Sweden, there is no “rational explanation.” People are appalled.
And it’s true. What happened as a result of the decision to end the peg is appalling. Though, I took a more patient tone in my commentary that day because 1) the SNB was smart enough to have abandoned their inflation target while adopting and maintaining the peg in the first place; 2) central bankers make mistakes. On Thursday I assumed it was a mistake with unintended consequences. I waited all day Friday for some kind of clarity from the SNB; clarity that never came even as some local newspapers ran giant, unflattering front-page headlines featuring large photographs of the head of the central bank. There are simply no words to describe the situation; “appalling” just isn’t strong enough.
I’ve noticed some disconnect in attitude though with everyone so quick to hamstring the SNB. While I don’t disagree that the SNB’s policymakers deserve everything they get, even still they have a short window of opportunity to stop the bleeding before the disinflation gets so terrible that the entire Swiss financial system implodes and unemployment skyrockets.
What is really appalling is the situation in which the central bank makes that kind of mistake and doesn’t back off for years while watching the chaos and blaming others. Blaming people with mortgages. Blaming banks. Blaming the unemployed. And, blaming governments. It happened in the United States 2008-12 and the blame is still alive and well even as Bernanke, the purveyor of such a mistake rode off into the sunset nary tarnished and his cohort in epic fail sits at the helm talking about raising the FF rate with little but conjecture to justify it while insisting she won’t babysit markets. Appalling indeed; and I am at a loss over the death of outrage because only time will tell just how much worse the SNB fiasco will be than this.