Albert Edwards, Societe Generale’s renowned and unashamedly bearish strategist has a new prediction: central bank independence will come under threat in the coming years as citizens of the world turn on what he calls “the main culprits of their poverty” in the post-crisis years.
Writing in his weekly Global Strategy note, Edwards — who has long been a critic of the ultra-loose monetary policy prevalent around the world since the financial crisis — says that while public anger and displeasure has been largely focused on the political classes in the last couple of years, central banks will be the next target once the public realises, that in his eyes at least, it is not politicians who are to blame.
“While politics in the West reels from a decade of economic crisis and stagnation, asset prices continue to surge on the back of continued rapid growth in G3 [Japan, USA, and the Eurozone] QE,” Edwards writes.
“In an age of ‘radical uncertainty’ how long will it be before angry citizens tire of blaming an impotent political system for their ills and turn on the main culprits for their poverty — unelected and virtually unaccountable central bankers?”
“While a furious electorate has turned its pent up anger on the establishment political parties, the target for their rage is misguided,” he adds.
“I am not completely alone in thinking it is the unelected and virtually unaccountable central bankers who are primarily responsible for the poverty of working people and who will be ultimately held to account in the next crisis.”
Edwards’ basic argument is that central banks, by cutting interest rates to record lows and pumping money into the world’s economies through extensive quantitative easing programmes, first inflated a giant bubble in the housing markets that hit the middle classes, and have now driven the “stagnation in growth” that has meant a so-called lost decade for many in the west.
Here is that theory in Edwards’ own words:
“After the GFC central bankers have collectively spent the last decade stepping up the pace of money printing to new extremes in an attempt to drown the global economy in liquidity, while couching their actions in plausible theories such as secular stagnation. There is no recognition at all by central bankers that it may well be their own easy money and zero interest rate policies that are actually causing the stagnation in growth while at the same time wealth inequality surges to intolerable heights.”
Sooner or later, he says, this will dawn on regular citizens around the world, who will turn their anger onto the central banks and their figureheads. In turn, the political classes will sense an opportunity to redeem themselves, doing so by, in Edwards words, making central bankers the “next sacrificial lambs to throw to the wolves.”
Here he is once more:
“For as the next inevitable economic and financial collapse comes ever nearer — a consequence of yet another global asset bubble bursting politicians will be looking for the next sacrificial lambs to throw to the wolves. It’s hard to believe Yellen, Draghi and Carney won’t be those bleating lambs. But then the mob will devour the very independence of those institutions with the connivance of a political class willing to do anything to save their own skins.”