David Beckworth is an awesome economics diplomat who again fails to disappoint in his interview podcast with Claudio Borio of the Bank for International Settlements (BIS), as they discuss the debt-filled boom before the housing crash.
Even though I do not particularly subscribe to debt bashing and credit-related fearmongering post-massive disinflation, especially of the sort that radiates from every crack and seam of BIS, I gave this podcast a go and found one grain of wisdom as Borio describes what BIS is, that bolsters my point raised in a post about Jeffrey Lacker’s defense of regional Fed presidents remaining on the FOMC.
Borio states that BIS is owned by central banks that are the shareholders, and “… we serve them.”
It makes perfect sense. Central banks own shares in BIS, and BIS, naturally, serves them. Federal Reserve member banks own shares in the regional Fed branches and, naturally, the regional Fed branches and their presidents serve them.
Think about source of complaints about not being able to make money with “low” interest rates, and who the real hawks have been on the FOMC, and who is being served by them.
If the level of interest rates is relative to the supply/demand for credit and NGDP expectations, and is therefore not really so low, then the Fed presidents and BIS being on the same side in the debate about rates hikes is a rather bizarre kind of contradiction. This is probably the natural sort of consequence when certain constituencies grab the nearest sycophant off the street to represent them, those telling them what they want to hear rather than what they need to hear: Financial institution income are included in NGDP and therefore banks cannot make money while everyone else is struggling under the weight of tight money. The answer to the dilemma is not tighter money – but just the opposite.
PS: I made the mistake of listening to the podcast as I was retiring for the night. After the revelation of serving shareholders, I drifted off.