Two letters in the FT [29.August] summarize a dilemma for the art of Central Banking

John Leslie favours Keynesian intervention in a period of longer-term declining inflation with some risks of deflation, but with high inflation in the 1970s a New Classical approach did better.

"… it depends on the long-term price trend and the presence or absence of major inflationary and deflationary risks."

Leslie thinks downward pressure on consumer prices should still allow the Keynesian approach one last shout for the next few years. My guess is this will test it to destruction.

In more alarming contrast K.R. Duncan says that in the US since 1998, it has taken $4.72 of debt growth to generate $1 of nominal GDP growth (long-term average of about $1.50 to $1). Since Mr Greenspan took office, the personal savings rate has declined from about 7.5 per cent to about 0 per cent and the money supply (here M0) has increased 334 per cent. Duncan says valid Central Bank policy must demonstrate the US economy can deliver superior growth on a foundation other than debt and dis-saving

Curiously it is not always clear what central bank policy on interest rates really is targeting. Even if contracted to target inflation CB is bound to keep one eye, perhaps appropriately enough for a one-club golfer, on asset prices, especially housing. Because motives are always fungible it is not clear how considerations outside the box affect close-argued decisions on interest rate.

Meanwhile some evidence in the EU suggests that Central Banks which fix on a single target, say inflation range, do not meet that target better than those fixed on another.