Mark Carney
Mark Carney\'s forward guidance faces challenges as the UK economy picks up quicker than expected (Reuters)

These days being a central banker is like being a tightrope walker with a chasm beneath so deep that the bottom cannot be seen.

Since the Great Recession started to swallow jobs, homes and countries from 2008 onwards, central bankers have undergone a transformation.

They are no longer conservative and reclusive figures with the simple task to set interest rates, but radicals in the spotlight tasked to steer and even regulate violent financial markets.

Their desperate political masters called on them to support the collapsing floor that has been the developed economies of the past six years.

Recently, there have been encouraging signs that the United States, United Kingdom, European Union and Japan have turned from rescue to recovery.

Maybe the economies are learning how to walk again and might even be walking by themselves without any help soon.

The massive yet unoriginal medication the central banks prescribed to their sick patients was historically low interest rates and injections of unprecedented sums of money.

Now many economists are wondering if the low interest rates and monetary stimulus has been excessive and led to harmful side effects like zombie companies or misallocated resources.

They now fear what will happen when the stimulus is withdrawn, as any correction in the markets could be sudden and lead to another financial crisis that could slow world growth.

There is huge debate about who will suffer, how much and when but another view is possible.

What if the fear of a massive global meltdown related to the reduction of quantitative easing is like the fear of the Millennium Bug?

A fear which in the present seems reasonable but is proven wrongheaded with the benefit of hindsight?

Carney's Great Expectations

The arrival of Mark Carney as governor of the Bank of England and his pioneering forward guidance framework to steer market expectations brought incredible speculation from both the media and markets; not all of it helpful to the suave Canadian.

UK sterling has appreciated and gilt yields have increased, even as Carney indicated that the BoE will likely hold the base rate at its record-low 0.5% until at least 2016, and that the door is not necessarily closed on the £375bn asset purchasing quantitative easing programme.

Some seasoned financial commentators like Allister Heath are sceptical of Carney's objective that interest rates will not rise until 2016.

Carney has made the compelling argument that the BoE should be concerned about unemployment as well as inflation and work to spur growth through low interest rates to encourage lending and investment.

Unfortunately for Carney, good news on the UK's economy over the summer is tinged with bittersweet irony.

Good economic news is bad news for the BoE's forward guidance policy as it undercuts the case that interest rates must remain low and might even work against its legal obligation to hit the inflation target.

Although Carney is intellectually self-confident, stylish and has a diplomatic feel for human relations, markets have a tendency of upsetting the forecasts which are imposed upon them.

Will Super Mario's Bluff Be Called?

If Carney's brand of forward guidance is difficult to pull off then Mario Draghi's brand of forward guidance is even more demanding if not seemingly impossible.

Draghi, as president of the European Central Bank, is responsible for the health of the euro currency that is underpinned by a fractured and politically dysfunctional monetary union.

Unlike the BoE, the ECB's role in the European Union is contradictory and confused.

The euro, unlike sterling, is not tied to a single country with unified laws, language, taxes and culture but 17, which have huge conflicts of interest in these areas.

Interest rates can be kept low by the ECB to shield European policymakers in the short-term and keep market forces at bay but markets, like the weather, are dynamic and unruly.

Tragically, the problems in Europe are beyond the power of one central banker to resolve and require courageous political decisions from leaders.

Draghi's promise in July 2012 "to do whatever" it takes to save the euro and his announcement of forward guidance in July 2013 were decisive interventions in crisis situations.

But the forward guidance of the ECB can only work if the favourably low interest rates it helps create are exploited by European policymakers.

Clearly a lot will depend on the outcome of the German elections on the 22 September.

Betting What the Fed Does

Draghi's and Carney's announcements in July 2013 that they would keep interest rates low until sustainable growth returned to their economies is in contrast to the goal of the Federal Reserve to reduce its monetary stimulus.

Chairman Ben Bernanke is under pressure to not choke off the nascent US recovery, normalise monetary policy and ensure that this normalisation does not come at the expense of growth in emerging markets, which are entering a choppy period.

Currencies like the Indian rupee have seen steep declines in value against the greenback and India is experiencing faltering growth.

The depreciation of emerging market currencies while the West seems to be falling into a sustainable recovery could lead to another economic crisis. It means that it is critical that those in power diagnose a problem if there is one and move swiftly to resolve it internationally though co-operation.

Therefore, Bernanke's focus on the start of a gradual reduction of asset purchases while the US economy finds its feet seems to be a sensible one.

Central bank co-ordination in a financially complex and volatile world is important, but might not be enough to avert a future economic crisis related to the gigantic expansion of balance sheets in the West during the Great Recession.

Hindsight is a Wonderful Thing

All of the intense debates about the level of interest rates in the future and the tightening of monetary policy are fascinating, but could ultimately be futile.

While the responsibilities of central banks have expanded considerably since 2008 and it is correct to be worried about the behaviour of financial institutions and their impact on the future, one must realise it is a future we cannot predict.

Current monetary policies are unconventional in that actions have been taken that have never been tried before.

It is only natural to ask what the legacy of these unconventional monetary policies will be.

But in a sense our reaction to worrying about the future is conventional in that we do not know where we are headed and probably never will.

History has irony and tragedy for a reason in that we only know what we could have done better long after we do not have a choice in the matter.

Who knows, could all of the energy spent on interest rests and quantitative easing be one giant Millennium Bug?

Michael Klimes is a business journalist for IBTimes UK.