At the end of each August, the world’s central bankers gather in Jackson Hole, Wyo. Sit around the ol’ campfire singin’ sad songs, goin’ fishin’ in pin-striped suits, and tellin’ tales about the big trout that got away. This year, most of ’em.

Despite the risk of feeding conspiracy theorists, it’s good to know that these people talk with each other constantly. The People’s Bank of China comes to Jackson Hole. Money is money everywhere, the problems different but the same, and today are tightly linked. Mangled policy in Europe creates risk in China, and makes it all the more difficult for China to adjust its own severe imbalances.

One central banker is missing: in the midst of widespread expectation of bond purchases by the European Central Bank, its chairman, Mario Draghi, cancelled his scheduled Jackson Hole speech. One thing is certain: if you’re afraid to leave town, you don’t have a deal.

Perfesser Bernanke spoke today shortly after smoky Wyoming sunrise. Markets hoped for immediate announcement of new quantitative easing (QE), and didn’t get it.

They did get a defense of QE, dismissive of its critics: It seems clear, based on this experience, that such policies can be effective, and that, in their absence, the 2007-2009 recession would have been deeper…. Then, "Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve."

Markets held their breath, fearful the Perfesser was backing out of the game, but got the clincher: "The stagnation of the labor market is in particular a grave concern… The Federal Reserve will provide additional policy accommodation as needed…."

There are four basic views of central bank policy:

1) These monetary authorities create more trouble than benefit and should be locked to rules or gold, or closed.

2) They may be active in deep emergencies, but should quickly return only to maintaining stable prices.

3) They should be as active as necessary without risking inflation.

4) If economies are dangerously slow, create inflation.

All but the first (which appeals only to those ignorant of 1930-32) involve "printing money" — merely a question of how much. Option two is the prescription of the bureaucrat: "Who, me… do something?" Option four is the darling of the left, championed twice-weekly by disgraceful Paul Krugman.

Option three is the only game, and no financial matter more confuses the public (and most policy makers) more than how to print money without inflation.

Here in the U.S., we still have a broken credit system. We have taken most losses and significantly re-capitalized, but credit is choked in circular fashion by a poor economy, low values of assets (houses), and weak employment. The worst damage: we’ve been Dodd-Franked, the new-age synonym for arbitrary and self-destructive over-regulation.

The Fed’s QE "prints" into a banking system with no outlet. Thus its result is limited to pulling down long-term interest rates and forcing cash from ultra-safety into risk. The link between inflation and credit is very strong: you can’t ignite anything with soaked kindling, and it’s the Fed’s duty to offset the credit shortage.

The European Central Bank’s problem is entirely different. Euro-zone banks have not taken losses, especially on sovereign paper, and have not recapitalized. The European Central Bank has done some printing, but injected cash only versus collateral.

If it begins to print to buy bad bonds outright, directly funding the budget deficits of the weak, cumulative and new… there is nothing more inflationary. Thus it must force an offset: a guarantee of austerity among the weak. Circularity is a plague common to central bankers. We can ease your transition to sound fiscal affairs, but not by free money inducing inflation: you must do your painful part.

That is a fair deal, much like the U.K.’s policy. However, the U.K. has one government. The European Central Bank has no means to enforce austerity, and dare not print in volume only to discover that the weak have slipped the hook once again. The U.K. has made more progress than it gives itself credit, and here in the U.S. a great deal more. Europe, three years into crisis… none at all.

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