Consider the context: governments define fiscal expenditure, consumers define consumption levels and markets price risk. If the central bank offshores pricing to markets, renounces both commentary and prophecy, what justifies its place at the pulpit?
Yes, they will determine policy rates. The policy rate, though, only touches overnight money. That which matters—mortgages, bonds, the yen, the rupee—are priced on the expected path of policy. Expectations are not a fashionable accessory in debates; they are the driver of transmission. Transparency about the present and silence about the future is not a policy, but a perilous contradiction.
Greenspan wrote in Ayn Rand’s newsletter in 1966: “Deficit spending is simply a scheme for the confiscation of wealth.” He then ditched Rand at the altar of alternative monetary theories and read vows with the market to practise discretionary pricing. The strategy was scaffolded by overt incoherence and covert action—the market rescues for 1987, LTCM collapse, dot-com burst. The Fed Put was actually born as the Greenspan Put. The belief was Greenspan would step in to save markets. The halo was wrecked by the confession before the US Congress in 2008 that he “found a flaw in the model”, the ideology that markets discipline themselves.
Warsh is Greenspan’s heir in method—constructed ambiguity, distrust of official data and faith that markets deprived of guidance grow up. The challenge to this belief is right around the corner—concentration risk in tech stock valuations, opacity of private credit bubbling into redemption gates, profligacy of governments. The central banks may not see it, but the Sintra consensus consecrated a church that abolished sermons to assume infallibility.
Forward guidance was the three-point belt central banking invented after its own crash of 1994. At Sintra, the belt was unbuckled. Seventy years of motoring swore seatbelts were unnecessary—right up to the windshield. Markets are now asked to ride the fastest vehicle finance has ever built on the same assurance.
Read all columns by Shankkar Aiyar
The Third Eye / Shankkar Aiyar
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India
Source: Original Article
