It Used To Be Called Political Economy For A Reason

In yet another anecdote that proves the global recovery can only be political, acting Brazilian President Michel Temer appointed Ilan Goldfajn to be the next central bank head for that nation. Goldfajn is about as orthodox as they come: trained at MIT (saltwater, as if makes any difference), former director at the central bank who has “consulted” with the IMF, World Bank, and United Nations. The nomination has pleased all the “right” people who are absolutely certain that Brazil’s worst days are now behind.

Reuters probably wrote about it best, unintentionally, under the headline Brazil Government Taps Wall Street Favorite To Head Central Bank.

“Well-trained technocrats … should allow the government to establish a clear regime shift,” Goldman Sachs senior economist Alberto Ramos wrote in a research note.

Trained by whom? To do what? More of the same. Along with Mr. Goldfajn’s recommendation, the interim government also indicated it would formalize rules making Banco more independent and supposedly less susceptible to political influence. The current structure for the central bank is highly unusual, with a shared power structure among the National Treasury, the Bureau of Currency and Credit while also including a private sector foundation in Banco do Brasil. “Independent” central banks, even here where it is insisted that independence will be expressly limited, are all economists want to hear as it gives them unrestrained power.

The move was welcomed by economists, who said the rule change would help bring down inflation, which is still running at more than 9 per cent — twice the country’s official 4.5 per cent target — in spite of an interest rate of 14.25 per cent.

“This is a positive step and a quick win for the government, and should help to anchor long-term inflation expectations,” said Neil Shearing, economist with Capital Economics.

How? His MIT degree will scare away monetary imbalance through sheer reputation alone? Long-term inflation expectations don’t source from MIT, the IMF, or the United Nations no matter how noble Mr. Goldfajn might be in person. Brazil has an enormous “dollar” problem and they respond predictably with the most orthodox man ever educated. Those who are praising the appointment actually believe they are complimenting him by calling him a “technocrat.”

To be a technocrat one has to demonstrate competency and a good grasp of the subject (and object). Those that are now being quoted all over the media in favor of this direction are the same that cheered on his predecessor who in 2011 acted on Finance Minister Guido Mantega’s first screams of “currency wars” and then committed Brazil to its predicate doom.