Do Central Banks Really Matter?

On today’s show we are wondering if governments and central banks in particular have any effect on the repairing the economy. 

It’s a simple question really. If central banks can truly influence the economy, inflation and the unemployment rate, then why are central banks all behaving the same way at approximately the same time?

Why is the bank of Canada going to lower interest rates later this week? Why did the ECB lower rates last week? Why did the Federal Reserve lower rates by half a point a month ago? Why did China’s central bank lower its benchmark rate by 25 basis points yesterday? 

I mean seriously, have you ever wondered why all of these central banks are setting their interest rate policy in virtual lock step? 

If the currency is being devalued at 2% per year, within the life of a 30 year Treasury, the value of that bond is reduced to 55.5% of the original face value of the bond within that 30 year period. This is a silent tax on consumers, on savers, and most importantly on the debt. The government needs that debt to be depreciated away. There is no magic behind the 2% number. It seems that 2% is large enough a number to have the debt whither away, but not so large as to cause a revolt among the population. 

When consumer prices are rising at 9-15% as we saw in the wake of the pandemic, it’s enough to cause social unrest and for governments to get voted out of power. 

But it’s curious that all of these disparate economies with vastly different governments are all experiencing falling consumer price indices. It’s not outright deflation, but is squarely in disinflationary territory. Can governments take the credit, or should they take the blame for printing money like drunken sailors?