Otmar Issing, former Chief Economist and Member of the Board of the European Central Bank, is President of the Center for Financial Studies at Goethe University, Frankfurt, and the author of The Birth of the Euro. In this article on Project Syndicate, he says central banks should abandon inflation targeting. Below are some excerpts.
-----------------------------------------------------------------------------------------------------"The reputation of central banks has always had its ups and downs. For years, central banks’ prestige has been almost unprecedentedly high. But a correction now seems inevitable, with central-bank independence becoming a key casualty."
. . . .
"On the contrary, a period of low and stable interest rates may even foster financial fragility, leading to a “Minsky moment,” when asset values suddenly collapse, bringing down the whole system. The limits of inflation targeting are now clear, and the strategy should be discarded.
. . . . .
"The failure of elected politicians to act appropriately – particularly in some eurozone countries – has turned central banks into the “only game in town.” And this is turning out to be less a boon to their prestige than a threat to their independence."
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My added comments: A thank you to Robert Pringle for alerting me to this article. It does illustrate that a number of experts are concerned about the sustainability of current monetary policies in use by many central banks. I noted the comment in this article about the potential for a sudden collapse in asset values in bold type because the source of this statement is a highly respected former central banker. Another former central banker, Richard Fisher has also made comments critical of the monetary policies being used.
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