Sri Lanka CB Governor promises stability, no quick monetary ‘sugar highs’ for markets
ECONOMYNEXT – Sri Lanka’s central bank will aims to create a stable environment for companies to grown and make higher profits but there will be no quick fix ‘sugar highs’ newly appointed Central Bank Governor Indrajit Coomaraswamy said.
"When you look around in many countries you often see government regulators trying to create artificial momentum in markets," Coomaraswamy said after ‘ringing the bell’ at the Colombo Stock Exchange to kick off trading on July 28, ahead of a policy decision later in the day.
"The record of such initiatives have invariably been disappointing. You find that pretty much all players in a worse situation."
"We do not think there are quick fixes. I think trying to create sugar highs by artificially trying to boost to boost asset markets or growth or anything else is not possible."
The world is still trying to recover from the massive housing and commodity bubble fired by then US Fed Chief Alan Greenspan and his depression era specialist side kick Ben Bernanke who cut rates to historic lows from around 2001 and kept them at one percent for too long in what some economists called the ‘mother of all liquidity bubbles’.
Greenspan and Bernanke trod on a path pioneered by the likes of John Law, a Scottish classical Mercantilist who persuaded the regent of France to create Banque Générale , a central bank prototype fired the Mississippi Company bubble and brought the French economy to its knees.
Since the creation of the central bank, Sri Lanka had not only been exposed to credit cycles of reserve currency central banks like the Fed (before 1951 the Bank of England and gold discoveries) but also self-created bubbles and balance of payments crises in between.
Coomaraswamy said the central bank will try to create a stable economic environment where fundamentals were strong and companies would make profits.
The government starting a stabilization program had already set in motion measures to improve budget deficits he said.
Prime Minister Ranil Wickremesinghe was also expected to come out with a detailed 5-year plan.
Though Sri Lanka’s stock market was not going through ‘the best of times’ now he said if investors believed in these measures, Sri Lanka was a buying opportunity.
The false doctrine that central bank’s boost ‘growth’ or create ’employment’ saw a resurgence in the 20th century after John Maynard Keynes, an economists turned Mercantilist came out with his so-called The General Theory of Employment, Interest and Money, as a prescription for a depression before World War II when credit was negative.
He did not live to see his theory being applied when credit was positive and the havoc created especially in post – independent countries like Sri Lanka after World War II where politicians were given a license to spend and de-stabilize economies with newly created central banks. (Colombo/July28/2016)