Friday, 16 August 2013

Brahminical Central Banking buggers small businesses

The Reserve Bank of India has just tightened Capital Controls in a bid to stem the decline of the Rupee consequent to an end to cheap American money. This won't hurt the big boys but it buggers growing businesses merely for the sake of a short term political objective- viz. showing the sclerotic Center is taking action (however counter-productive) at at time when Modi has Manmohan on the ropes.

The outgoing R.B.I supremo, D.Subbarao,  had spoken of a new 'Holy Trinity' for the Central Banker as opposed to the well known 'Impossible Trinity' of Mundell (originator of optimal currency area theory)
In this context, in an influential paper, Subbarao, introduced a new term to the lexicon of the Central Banker- viz. a 'Brahminical' attitude. What did Subbarao mean?
A Brahmin belongs to the priestly caste. He is concerned with the correct performance of rituals. He has little practical experience of the world. He believes it to be more important to condemn perceived wrong-doing rather than to sort out problems as they arise.
Banking isn't brahminical. It's a business.
If it becomes brahminical then, though it can't fabricate Heaven, it can plunge us into Hell.
How? Why?
Well, Banking is about Credit- belief in the solvency of others. But solvency is a function of ingrained business-like behavior and widely diffused risk-management skills. Clearly there is an element of impredicativity in what we are looking at. This does not matter so longer as there isn't too much noise in the underlying Co-ordination game for the formulation of Muth Rational Expectations.
A more or less market solution to this is the evolution of a price leader who assumes a risk-pooling function which exigent circumstances of State will tend to formalize as a Reserve Bank.
This is fine so long as the Central Banker is still a businessman recruited from and answerable to the Market.
However, if Central Bankers become 'Brahmins' then there is no Muth Rational Schelling Focal point for the
market because 'the correct economic theory' held by the Governor might be a purely normative one. In any case, there is going to be a signal extraction problem because the Market is no longer being governed by one of its own and so a new language has to be learnt.
Given that Mathematicians understand Mathematicians, Musicians, Musicians and so on, we should not be surprised that Bankers understand other Bankers. Why would we ever want to have Central Bankers who aren't actually Bankers?
A simplistic answer is, policy makers think that businessmen are naughty school-boys and since Bankers are businessmen of a bigger kind, it follows that they are likely to be more naughty than most. Thus, perhaps, the Central Bank should function like a monastic order- the Christian Brothers who ran my alma mater come to mind- caning naughty Bankers and generally raising the tone of the School by delivering turgid sermons.
But what is to stop the Monks sodomizing their charges and getting high on their stash? Nothing. Probably do the entitled little shits some good to be buggered senseless from time to time. However, the problem is that not all Monks want to sodomise those in their charge. The non-sodomists among the Monks may well resent their happier colleagues. What, then, is to be done?
The answer, of course, is that the Monks should remain preoccupied with working out their own salvation with respect to the dark mystery of a Triune God. That way they won't notice, or get unduly worked up about, kids topping themselves coz they just can't take no more priestly dick.

Subbarao- himself a 'Heaven Born' Civil Servant, rather than a Banking professional- spoke thus to his fellow Central Bankers a year and a half ago-
'The global financial crisis followed by the euro zone debt crisis has changed the theology of central banking in a fundamental way. The orthodoxy of central banking before the 2008 crisis was: single objective – price stability; single instrument – short-term interest rate. Although most central banks deviated to different extents from this minimalist model, this came increasingly to be considered the holy grail. The crisis came as a powerful rebuke to central banks for having neglected financial stability in their single-minded pursuit of price stability. By the time of our first conference two years ago, a consensus was developing around the view that financial stability has to be within the explicit policy calculus of central banks, although opinion was divided on the precise nature of institutional arrangements for maintaining financial stability.
Fast forward to 2011/12. Even as central banks are grappling with balancing the demands of price stability and financial stability, there is now yet another powerful assault on central bank orthodoxy arising from the big elephant in the room – the euro zone sovereign debt crisis.
The European Central Bank (ECB) is being called upon to bend and stretch its mandate to bail out sovereigns who have forfeited the confidence of markets. Actually that is an understatement. In reality, the ECB is being challenged on why it is, to use an Indian word, being so brahminical about its mandate when the world around it is collapsing. The argument, in its essence, is that if a central bank is committed to financial stability, it cannot ignore the feedback loop between financial stability and sovereign debt  sustainability, and by extension therefore, it has to be mindful of sovereign debt sustainability concerns.
What do these trends engendered by the crisis indicate? In particular, is it the case that the mandate of central banks is set to expand from the single objective of price stability to multiple objectives of price stability, financial stability and sovereign debt sustainability? Can central banks simultaneously support all these three objectives and do so efficiently? That in essence is the new trilemma.'

Fuck off.
This isn't a trilemma and it isn't new and it doesn't have an essence.
Banking is a business. Central Banking is Banking's business.
Our business- and therefore the business of our elected leaders- is to ensure we get a good deal from the Bankers and pay them a declining portion of our Income. That doesn't mean Bankers must necessarily get relatively poorer over time. No. They can add value by giving hair-cuts or manicures while lecturing us on our overdraft. The technology already exists. We are all just one step away from ubiquitous banking.
As for Subbarao's Holy Trinity- fuck price stability, fuck debt default, fuck Demand management. Prices oughtn't to be too stable because the best future we can possibly have isn't the most stable. Debts ought to be defaulted on once it is clear everybody got their predictions wrong. There's no Moral Hazard coz the counterparty believed the same thing as the 'bad' debtor. Fuck Demand Management- Govts. should be figuring out ways to spend money such that voters get a bigger bang for their buck. When they can't think of anything or don't have the will or ability to manage the spending- let them come out and say so. Pretending people in top jobs are smarter than us when they aint don't help nobody.
What's the point of subscribing to a 'Noble Lie' in the age of the internet? Anybody, anywhere, can find out the truth just by tapping a few times on their smart-phone.

Currently, Subbarao, as a parting gift to the Indian Nation, is putting us on the slippery slope back to Capital Controls. The way this is structured creates a rent for 'insiders' and penalizes the much larger class of late-comers who have already taken a hit. This isn't Hicks-Kaldor efficient. Dynamically it's fucking fiscal hara kiri- you are buggering up small businesses and adolescent industries and many of them are gonna top themselves coz they just can't take no more priestly dick.
What's bad for the fiscal deficit medium to long term is still going to be brought forward as downward pressure on the Rupee so it isn't as though there's even a short term, expedient, gain.
I guess, the truth is, good soldier Subbarao is making things easier for his much hyped successor- an Economist, not a Banker, who has already signaled that he's a Deficit hawk- such that what he will call lifting Capital Controls will make a good sound-byte around election time to give the markets a cheap thrill.
Fuck. It will probably work.
The Pope is dead. Long live the Pope.
Small businesses, reinforce your underpants. Brahminical Central Bankers are on the prowl.

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