The Bank of International Settlements and Mr Caruana

Paul Krugman has launched a harsh criticism against the Bank for International Settlements–which coordinates regulations in the fields of financial services to promote international financial stability. He said the BIS latest report is inconsistent and intellectually dishonest. And I wholeheartedly agree.

The BIS complains about governments having made insufficient savings to cut public debt volumes down, what has caused a debt per GDP ratio increase. But that would be according to their economic model, because in Greece, for instance, spending has contracted by some 15% while debt per GDP has spiked to stratospheric levels because the GDP has fallen deeper and quicker.

Krugman is right, but he could go further. The BIS is one of the institutions that has publicly put more pressure on the US Federal Reserve to change the course of its monetary policy–yes, a move that has depressed the bond market.

I wonder if the BIS is committed to simply depress the world economy. Why? Because its board wants monetary markets, financial markets and fiscal policies to be tougher as though the word austerity had a miraculous power and there was no relation between it and an ongoing crisis with no end at sight. Unfortunately, this crisis shows that fiscal retrenchment feeds GDP drops and debt rises, which pushes risk premiums up, too.

Is this the respected central banks’ bank? Couldn’t we just shut it down to stop it from scaring us all with absurd remarks? The BIS seems unaware of the precarious state of the European banking system, which is in itself a terrible failure when you think about it being the BIS’ job.

By the way, its director general is Jaime Caruana, former governor of the Bank of Spain. Let me introduce him to those who may not know him yet: I never heard an original idea from Caruana. He’s definitely not a fast learner, or a learner for that matter. But he knows how to open the door of a car when there’s a powerful person coming out of it.

Some readers would be tempted to accuse me of being biased. Let me add that the Bank of Spain should be also shut down: it has no influence over the European Central Bank, and it has lost its necessary independence. It needs a governor that’s not appointed by any government. Its decisions have made things worse for Spain’s banks, and in Frankfurt its behaviour looks like a mere absentee’s.

Both, BIS and BoS would make for stupendous horror museums of bureaucratic nonsense and paraphernalia, useless meeting points from which only noise comes out.

About the Author

Miguel Navascués
Miguel Navascués has worked as an economist at the Bank of Spain for 30 years, and focuses on international and monetary economics. He blogs in Spanish at: http://http://www.miguelnavascues.com/

1 Comment on "The Bank of International Settlements and Mr Caruana"

  1. Interesting article. Even better, for me, would be to question why they would be using their own economic model. How exactly is it not accurate, and what incentives lie behind the BIS’s decisions.

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