William White is a senior adviser to the Organization for Economic Cooperation and Development (OECD), and heads the OECD's Economic and Development Review Committee. He is making waves with a recent, fairly scathing, critique of various nations' central banks. According to White, Central banks’ excessively liberal monetary policies are putting the global economy at risk, and he wants things to change.
Many central banks, including the ones in the United States and Japan, have been following policies that include things like negative interest rates, quantitative-easing programs, and others intended to bolster economies and speed growth. However, White believes these programs may have unintended side effects, including higher debt levels for both the government and its consumers.
White believes these problems are the natural consequence of shifting central banks' focus from their normal task of monitoring inflation and asking them to help governments find ways to generate sustainable growth.
“The objective of that policy has changed totally -- it’s trying to stimulate aggregate demand and the honest truth is that it’s not capable of doing that in a sustainable way,” White said in an interview with Bloomberg. “If people thought we were in a period of deleveraging that would set the scene for a period of robust growth. We haven’t even started yet.”
White points to investor expectations on banks around the world as evidence supporting his position. In Europe, Central Bank President Mario Draghi expects to ease its policy on the euro in March because of the slump in oil prices and the ensuing reduction in inflation. Similarly, the Bank of England has retreated from earlier assertions that it would increase interest rates.
The US Federal Reserve Bank (Fed) is also no longer expected to raise rates later this year. Meanwhile bond yields in Japan fell below zero for the first time ever on Tuesday after the central bank created a negative interest rate on bank reserves.
White said he and the OECD are skeptical about the benefits of these various strategies because they believe that these tactics create an undue strain on the banking system. “Negative rates on reserves are actually squeezing bank profits, and this is something we don’t want in these circumstances, we want them to build up their capital buffers ... This is all experimental.”
Rather than these approaches, White and the OECD suggest the better approach would be to have national governments with sufficient budget margins to boost spending. He also believes nations should focus on growing wages, rather than tinkering with different models of financing.
The OECD believes global wages remain too low. Structural reforms to boost growth and increase wages would cause a bigger boost to economic development, and systematically paying down debts should have a more positive impact on the global economy, he asserts.