Central banks around the world are doing everything they can to spur growth.But the results — and commentary behind policy decisions — have been difficult to decipher, UBS’s Art Cashin writes in his morning note today.
Cynics and pundits have argued that collectively central banks are in a race to the bottom, to weaken currency to increase exports.
Cashin weighs in on the confusion today. From Cashin’s Comments:
The Not So Clandestine War Among The Central Banks – Back in Philosophy class in the 5th grade, the instructor in Epistemology used to have an interesting parable on problems of perception.
The thesis went something like this: Suppose you are an alien and have been told about the game of chess. Due to a technicality, however, your equipment would only allow you to see one square on the board. Over the course of the game any, or all, the pieces might arrive on your square.
You might see a Knight or a Bishop; a Rook or a Queen or a Pawn, but you would never know where it had come from nor where it had gone when it disappeared. You never got quite enough information to envision the entire board or the concept of the game.
I was reminded of the parable as I have watched the actions of some key central banks over the last few years.
According to the financial media, each central bank is easing aggressively to serve a need of the area it serves.
The Fed is easing to help employment and the housing market in the U.S. The ECB is easing to help its banks, sinking under sovereign debt problems. The People’s Bank of China is easing to avoid a hard landing. The Bank of Japan is easing to restart an economy that has been dormant for two decades.
Those may be the official lines but cynics think there may be more to the game than is seen through this telescope. Cynics think it’s all about the currencies.
The thinking is that each bank would like to see its currency weaken to make its exports more attractive. It doesn’t stop there. With Europe being China’s biggest trade partner, some believe the PBOC is the bid under the Euro at 1:30, keeping the Euro strong enough to make Chinese goods attractive.
The currency influences of the other central banks may be a bit more subtle but no less effective or intense. No trade war yet but lots of drilling and marching.