Monetary Breaches

The town Jackson Hole in the American state of Wyoming is known for its breathtaking view, but the central bankers who gather there tomorrow for their annual jamboree will have trouble this time admiring the surrounding landscape.

When they focus their view on China, they see a plowing steam train that overtook Japan in the past quarter and is dangerously gaining speed. When they look at Europe, they discern a surprisingly strong economy in Germany and its economic satellites.

But the central bankers will also see an ever-deepening gap with the southern portion of the European Union. Conducting a common monetary policy for the entire euro region becomes more difficult with every passing month. That also goes for the host country, America. In the past weeks, the bad news on the economy pours in over there, with the provisional low being the collapse of sales of existing homes in July by more than a quarter. Even though the American economy shows less internal tensions than the European economy, the division within the central bank itself grows. The media discovered that during the most recent meeting of the Federal Reserve, seven of the seventeen present managers turned against the plan of Federal Reserve Chairman Ben Bernanke to continue the ample monetary policy until further notice.

Such a large opposition among central bankers is exceptional. This illustrates the gap in thinking about the economic policy that continues to widen, especially in the U.S. With an unemployment rate that stays stubbornly high at 9.5 percent of the labor force, the criticism of the Obama administration increases. The House Minority Leader, John Boehner, openly called on President Obama to fire Secretary of the Treasury Timothy Geithner and Director of the White House National Economic Council Larry Summers.

Political pressure easily pushes the economic policy makers in the most important countries of the world economy apart. The central bankers have, as monetary policy makers, shown consensus up till now. That is a big thing, but now that internal division is threatening here, it could break the common front against the credit crisis and its consequences. Even within the European Central Bank, tensions are running high.

Member of the Governing Council Axel Weber, president of the German Bundesbank, caused irritation last weekend by speaking about the very delicate subject of the medium term monetary policy. That is considered the exclusive domain of Central Bank president Jean-Claude Trichet.

And so the upcoming episode at Jackson Hole will become a burdened meeting. The sociable discussion club that the meeting normally is will have to make way this year for a search for greater unity. The last thing the world economy needs at this moment is disagreement between and within the most important central banks.