Not so fast. It is true that the global economy, in general, and the finance industry, in particular, look less damaged than we could have imagined a year ago. It is also true that the huge injection of liquidity into the financial system that the central bankers urged and then provided is the major factor behind this. Even so, it may be right to view central bankers as much a part of the failings that helped generate the credit crunch as providers of the solution - and it still looks that way.
To see why, consider the euphoria in the world's stock markets these past six months. Broadly speaking, equity markets have jumped 50 per cent since March, a pace of recovery not seen since 1975. Those who have their fair share of exposure to equities are loving it. Those who were too slow or too cautious may be regretting it. But no one is complaining.
Yet if consumer prices had risen at the same pace, then many would be. Markets would be quivering, and central bankers would be responding - presumably by raising interest rates. The fact that they are not - and no one is demanding that they do - reveals an inconsistency that goes to the core of central banking.
The inconsistency - though central bankers don't have a monopoly on it - is in their views on inflation. The prime purpose of central banks for the past 10-15 years has been to contain inflation. But what sort of inflation? Because they seem to think that one sort of inflation is good, and another sort bad. That is, inflation in the price of assets - bonds, shares and houses - is good; but inflation in the price of consumer goods - and this includes wholesale prices - is bad.
Conventional wisdom assumes that consumer-price inflation is bad. In the words of JM Keynes, it causes relations between borrowers and lenders to "become so utterly disordered as to be almost meaningless". Yet, if so, it must apply to asset-price inflation also. After all, a substantial rise in, say, the price of a house is no more than deferred inflation. It imposes a burden on buyers and, in the process, pushes up housing costs far into the future. Ditto the rising price of shares. That raises the cost of buying a company, saddling a buyer with expenses that will distort his future decisions.
Additionally, we might question conventional wisdom: why is consumer-price inflation bad? Actually, that question is better addressed if we point out that muted inflation - the sort that central bankers get misty-eyed over - is not necessarily good. Put in this way: the three great financial crises of the past 80 years have developed when inflation was dormant - the US's in the 1920s; Japan's in the 1980s; this one in the 2000s. Once happenstance; twice coincidence; three times, enemy action, as Goldfinger told James Bond.
Besides, it is logical that low inflation should carry the seeds of disaster. First, it brings 'money illusion' in reverse - borrowers fail to notice that interest rates, while nominally low, can be quite high. So they borrow more than they should. Second, the stability of low inflation engenders a false sense of security, prompting both borrowers and lenders to take foolish risks. Third - as happened in the 1920s and 2000s - structural changes in the world's economy can push down the price of goods. As a result, simultaneously corporate profits surge and consumers are better off, prompting a binge based on the misunderstanding that these benign conditions will be self-sustaining.
But, if the two sorts of inflation are the same, why aren't they treated as such? Because few people like consumer-price inflation, but lots of us like asset-price inflation - at least until the party ends. Besides - speak it softly - perhaps a change is coming. At least, regulations to bear down on banks - assuming they become reality - will limit their role in the global economy. That will curb the supply of finance on which future asset-price inflation will be based.
So, assuming that central bankers maintain their vigilance on consumer prices, will both versions be squeezed, to everyone's benefit? It would be naïve to imagine so. Don't forget that controlling inflation is not an end in itself, but a means to maximising stable growth. The trouble is, that's really an oxymoron. If you want stable growth, it won't be at the maximum rate possible. If you want to maximise it, you have to accept volatility. Lots of central bankers know that. But they are failing to convey the message to the politicians and regulators who believe that financial markets are more Coronation Street than Mad Max. Pity.
