The Federal Reserve had $800 billion on its balance sheet half a decade ago; now it is closing in on $4 trillion. The European Central Bank has pledged an open-ended backstop of the finances of the 17 nations that use the euro. The Bank of Japan is engaged in an effort to jolt the nation out of its long cycle of stagnation by doing whatever it takes to get inflation up.
My sense is that the hubris of 2005 has been replaced with a wary reluctance. In each case, the central bank is doing what it thinks must be done not out of supreme confidence it will work, but out of confidence that not acting would be even worse.
On the surface, the only thing the same about this year’s gathering of central bankers in Jackson Hole, Wy., compared to the momentous events of the last several, will be the vistas of the Grand Tetons and the Snake River Pale Ale served in the Blue Heron Lounge.
For the last six years, Federal Reserve Chairman Ben Bernanke has used his much-scrutinized annual talk at the economic symposium, sponsored by the Kansas City Fed, to signal the direction of his own thinking on the future of monetary policy; this year he isn’t making the trip at all.
For the last six years, the global financial system has seemed at risk of coming unglued at any moment, and the gathering was a chance for leading global central bankers, the first responders to the ever-evolving crisis, to compare notes and plot how they might respond. Now, some recent rumblings of trouble in key emerging markets notwithstanding, there is relative calm.
And for the last six years, it has been a single cast of characters guiding the world economy through this mega-crisis. Now, Jean-Claude Trichet, Mervyn King and Masaaki Shirakawa, until recently the central bankers of the Eurozone, Britain and Japan, have all exited stage left, and Bernanke looks almost certain to follow them when his term is up in January.
