Tower of Babel

The author of the Book of Genesis is particularly cunning on the narrative of the tower of babel: “And the Lord said, Behold, the people is one, and they have all one language; and this they begin to do: and now nothing will be restrained from them, which they have imagined to do.” The constraints to power arise because of discord: agreement unleashes an unbounded potential of possibilities. This is what has happened in mid-2012:  the central bankers of the world united their languages and spread abroad the message of “to do whatever it takes”. Market forces could question their audacity of doing whatever it takes, but in mid-2012, market’s participants were willing to believe in it. The great rally begun.  

Even though the central bankers adopted one language, politicians did not. The ramifications of the great rally on the real economies were dissonant.  While U.S. economy responded with moderated enthusiasm to the riches created by the rally, after all multi-millionaires still cultivate extravagant habits, most European economies and Japan barely responded. For a while investors could tell themselves that eventually those crazy Europeans bureaucrats and politicians would broke an agreement to provide fiscal and banking stimulus. Eventually Japanese exports would rise in response to a major shock in relative prices. Eventually the top of the Tower of Babel would reach unto heaven.

Today, with its extremely hawkish statement, the Federal Open Market Committee has acted solo. “Go to, let us go down, and there confound their language, that they may not understand one another´s speech.” Grandma Yellen is not anymore speaking the same language of Almighty Draghi. There is no more scope for “eventually”: dissonant economic policies imply an urgent need of action, and policy makers have hitherto shown very limited skills to act under pressure. There is little hope for something different now. Dangerous times are ahead us. “So the Lord scattered them abroad from thence upon the face of all earth: and they left off to build the city”.