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The Mystic Hand Reviewed
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Norm Goldman --  bookpleasures.com Norm Goldman -- bookpleasures.com
Montreal, QC
Sunday, May 29, 2022

 

Author: Johan Van Overtveldt,

Publisher: Agate

ISBN: 978-1-57284-306-6

If you follow the daily financial news, no doubt you have presumably heard of references to "the Fed" in the USA or central banks, reserve banks, and monetary authorities in other countries.

What are these institutions? How do they operate? Why did they play an essential part in putting out the economic fires such as the the Great Recession during the 2000s, and the recent pandemic? 

Essentially, these entities manage the currency and monetary policy of a country. They have repeatedly played an important role in private sector developments, public finances, and government policies. They are known as the lender of last resort.

Financial institutions that cannot get the funding for their daily business turn to these central banks. They are accorded the task of providing financial markets' smooth operation and stability. 

Johan Van Overtveldt, author of The Mystic Hand: How Central Banks Shaped the 21st Century Global Economy, points out that: "since the 2007-2009 global financial crisis, central bankers have become the pivotal players par excellence in economic and financial matters,  and their immediate bold actions that they have taken in response to the COVID-19 pandemic have further expanded their domination."

Their hand, so to speak, is felt everywhere, more so often than ever before in human history. And that hand is surrounded by a lot of mystique. It is this mystique that constitutes the central theme of the text. 

Van Overtveldt served as the Belgian Minister of Finance before joining the European Parliament and becoming Chairman of the Budget Committee. He focuses on financial and monetary matters across the European Union.

Noticeable about this book is Van Overtveldt commences at the most basic level and assumes his readers have bare or no previous familiarity of the workings of these central banks. Throughout the tome's six chapters, he examines The Great Depression, the 2007-2009 global financial crisis, the timeline of the financial crisis, the immediate aftermath of the 2007-2009 global financial crisis, and an examination of the unintended and primarily negative repercussions of the exceptionally unorthodox monetary toolbox, and ending with the policy framework of central banks. 

As he specifies throughout, since 2008, these central bankers have been doing things they have never done before, with a magnitude that's built up over what's turning into a rather lengthy period.

They may have acted creatively to escape serious disasters, but it is a double-edged sword. The impact of these practices on economic growth tends to weaken as time moves on, which leads to the pitfalls of increasing inequality. So too is the effect of unusual monetary policies on asset prices, such as housing prices and bond prices. We have a monstrous debt accumulation, bubbles, and political stagnation, where economics becomes thwarted by political decisions. And politicians are more engrossed in the next election and prefer increasing spending than cutting it.

As Van Overtveldt concludes: "Which of these two sides dominates the distributional effects of unconventional monetary policies? There's no straightforward answer to this question." When you attentively scrutinize these strategies, you can quote the old saying, "be damned if you do and damned if you don't." 

When asked what made him feel this was the time to address central banks, Van Overtveldt replied: "The Great Financial Crisis of 2007–2009 turned central bankers into the only game in town when it came to policies aimed at ending the crisis. The COVID-19 pandemic has only reinforced this unique position of central bankers." 

In the Epilogue, Van Overtveldt leaves his readers with the sobering conclusion that indeed the Central banks were able to snuff out the fires during preceding economic debacles. Nonetheless, maintaining these unorthodox monetary policies will continue to lead to periods of turmoil, disorder, and paralyzing uncertainty will occur with escalating regularity. Crises will become more severe, and the room to satisfactorily react in terms of policy simply won't be there. Not a very encouraging picture of the future! 

 

 Norm Goldman of Bookpleasures.com

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