Jens Weidmann: "Monetary policy can only buy more time"

From a Telegraph article, Jens Weidmann, president of Deutsche Bundesbank, observed that it was "wrong and dangerous" to rely on the central banks because "monetary policy can only buy more time".

Please re-read the highlight text as Mr. Weidmann makes the very important point that monetary policy is not the right tool for fixing the problems that led to the financial crisis.

Japan has shown this to be true for the last 2+ decades.  The EU, UK and US have shown this to be true since the beginning of the financial crisis in 2007.

The question is 'using the time that the central banks buy at great expense, what needs to be done to resolve the financial crisis?'

Your humble blogger has laid out a blueprint for what needs to be done.  This includes adopting the Swedish Model and requiring the banks to recognize upfront the losses on all the excess public and private debt in the financial system.  In addition, there is a need for fiscal stimulus.

To date, our policymakers and financial regulators have not followed this blueprint.  Instead, they have managed to substantially increase the cost of the crisis by pursuing policies that have been shown to never end a bank solvency led financial crisis.

The global policymakers' and regulators' actions have worked out well for bankers, it has worked out badly for taxpayers and society.

"Central banks in recent years have been pulled into the role of a crisis manager. Some think that central banks are the only able ones. I consider this thinking wrong and dangerous," Mr Weidmann told Finnish newspaper Helsingin Sanomat in an interview. 

"The program can bring considerable risks to the monetary policy. Those risks now have to be limited and prevented," he was quoted as saying...

"Monetary policy can only buy more time. It is like a painkiller which will not erase the reasons but can cause risks and side effects," he said. 

He also warned against Europe depending on the ECB to supervise banks in the banking union. "That would mask the conflict of interest between the supervision task and monetary policy. I hope that the ECB would only serve as a helper," he said.

A conflict of interest that exists at the Fed and has lead to the Fed identifying with the banks/Wall Street and adopting the policies that the banks/Wall Street prefer (don't take my word for it, Professor Stiglitz made this observation in his recent speech in India).