by Alasdair Macleod:
"My father, who at one time was an education minister in the Kenyan government, used to tell a story of a long-forgotten crisis when the leaders in the educational establishment could only turn to him and ask: "minister, what shall we do?" The point of the story is that these were all highly qualified senior academics, while my father had left school at 16 with no qualifications at all. It amused him.
"We have perhaps in the last week seen three instances of the same thing: expert committee men exhausted of ideas, despite their towering intellects. I refer to Ben Bernanke's Jackson Hole statement which said nothing; David Cameron's statement at Prime Minister's Questions, when he was reduced to that old stand-by "cure" for economic stagnation (building more houses); and then on Thursday we had Mario Draghi resorting to buying time by talking borrowing costs for Spain and Italy down on the conditional promise of some bond buying. None of them had anything new to offer.
"The Federal Open Market Committee, the senior civil servants in Whitehall, and the Governing Council of the European Central Bank are all intellectually at sea. They have deluded themselves with Keynesian fallacies, believing animal spirits must be revived. "Animal spirits" is code for not understanding the fundamental purpose of free markets. Instead, governments and central banks blame market irrationality and seek to manage them to promote economic growth. They then wonder why it all goes wrong.
"Here is the true situation: unrealistic asset valuations, the result of zero interest rates, have strangled progress. Note progress, not growth: this is deliberate. The result is that markets no longer work effectively, so it is impossible for the economy to advance. Governments and central banks cannot face up to this reality, because over-valued assets are collateral for record levels of debt that have accumulated over the last 50 years, the result of government-sanctioned expansion of bank credit. .."