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To: Jim S who wrote (38623)	8/8/1999 1:50:00 PM
From: Alex	Respond to of 116764

The extraordinary power of the world's central bankers Stephen Mulholland Another Voice IT CAME as an invigorating breath of fresh air to hear our new Reserve Bank governor, Tito Mboweni, declare that he will not attempt to defend the rand against currency speculators. In a Business Day report, he was quoted as saying that it was a waste of time trying to take on the speculators. He added: "When you intervene they take you to the cleaners." Too right, mate, as they say in Australia. It fills me with despair to think of the untold billions upon billions of precious foreign exchange we have squandered over the years futilely defending the rand. I remember when it was US1.40 to the rand. We fought the speculators all the way down to the current US16c. That's right, sixteen American cents. Somehow that brings it home far more effectively than R6.20 to the dollar. This weekend Mboweni was inducted into the high priesthood of international finance. It's a cosy club of some of the most powerful men (I don't know offhand of any women governors, although there may well be some) in the world. What distinguishes these people is that they wield extraordinary power over the affairs of the world - and yet nobody elected them. They are appointed by their respective heads of state and worship at the altar of what is known as the independence of the central bank. What we must never forget is that central bankers, for all the mystique which surrounds them, are as fallible as any other mortals. In fact, being almost a law to themselves, immune to criticism from the public or ignorant politicians, their own overweening confidence leads them into errors which can, as in the Great Depression, devastate the lives of ordinary people all over the world. In their monumental work, A Monetary History of the United States, 1867-1960, the Nobel Prize winner, Milton Friedman, and Anna Jacobson Schwartz demonstrate conclusively that the trauma and suffering of the Great Depression can be laid squarely at the door of the Federal Reserve System. Of course, there were other, non-monetary factors, at work. But in Chapter Seven, aptly entitled The Great Contraction, Friedman and Schwartz point out that it is hardly conceivable that money income could have declined by over one-half and prices by over one-third in the course of four years if there had been no decline in the stock of money. In Friedman's view, part of the problem with central banking is that it depends for its efficacy almost entirely on the personality of the individual in charge. In his contribution to a 1962 study, In Search of a Monetary Constitution , published by the Harvard University Press, he discusses the impact of the death in 1928 of Benjamin Strong, then governor of the most important of the regional federal banks, the Federal Bank of New York. He was the dominant figure in the System, and when he died power shifted from New York to Washington where the people involved were of mediocre calibre. Consequently, writes Friedman, in the emergencies that came in 1929, 1930 and 1931 the Federal Reserve System acted timorously and passively. There is little doubt that Strong would have acted differently. If he had still been governor, the result would almost surely have been to nip the wave of bank failures in the bud and to prevent the drastic monetary deflation that followed. Today, the Federal Reserve System has in Alan Greenspan a cunning, subtle operator of great intellectual quality and the highest ethics. He has been the secret weapon that has kept that sorry excuse for a president, Bill Clinton, in the White House. Selection of the head of the Federal Reserve is probably the single most important decision a US president makes. If he picks the wrong person for the job, his presidency, regardless of his other contributions, will be marred. If he chooses wisely, his presidency will be enhanced. Of course, it took Ronald Reagan - another cunning, subtle operator - to select Greenspan. btimes.co.za