Financial Stability News

News about financial stability and central banking

Monthly Archives: November 2011

Helicopter money and government investment

This is what is needed now to avoid another Depression according to Robert Skidelsky, professor emeritus and eminent biographer of Keynes.  In this Project Syndicate post he makes the sensible proposal, earlier advocated by J Stiglitz, that government expenditures for investment makes sense today even though it will add to government’s deficit. He notes that:

If today’s accounting rules are too insensitive to make this distinction, a separate entity could do the investing. A national investment bank would be capitalized by the government, borrow from the private sector, and invest in infrastructure, housing, and “greening” the economy. This would simultaneously plug a hole in demand and improve the economy’s long-term growth prospects. There are signs that officials in the UK and the United States are starting to move in this direction.

 

 

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Why Is There a “Zero Lower Bound” on Interest Rates? – Liberty Street Economics

Why Is There a “Zero Lower Bound” on Interest Rates? – Liberty Street Economics.

This article from NY Fed explains why the Fed and the BoE is reluctant to lower their rates to zero. Since money effectively carry zero rate of return, but is nominally fixed, it is hard to go negative. However, Irving Fisher recommended “stamped money” during the depression as a way to get people to spend more. Your currency was stamped, and if not used within the stamped date, it’s value fell to zero. Perhaps an idea if nobody else will spend their monies?

“THE MAN WHO SAW THROUGH THE EURO”

John Cassidy of the New Yorker had an interesting story about former Levy scholar Wynne Godley. He was very critical of the Euro project (even though he was in favor of more European integration). He was joined by several other Levy associates (many of which are associated with the so-called “Modern Money School” or MMT for short. They were all critical of the experiment to break the link between the Government and the institution of money. This blogpost claims they had their story right, as is unfortunately now being played out in Europe. However, many other economist in the US were also critical to the Euro “experiment”, see this article in the Economist from 1992 by Martin Feldstein.

Keynes vs. Hayek: An Economics Debate

This afternoon (Eastern time) Reuters will broadcast a live debate between two teams of economist, replicating the Keynes vs. Hayek debate of the 30s. The two teams consists of four Keynesians – economist James Galbraith, son of the high priest of Keynesianism, John K. Galbraith; New Yorker columnist John Cassidy,  Sylvia Nasar, the historian of economic thought and author of Grand Pursuit; Steve Rattner, the architect of Obama’s auto company bail-out – and four Hayekians – Economics Nobel Prize-winner Edmund Phelps; Professor Lawrence H. White of George Mason University; Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute; and Stephen Moore of the Wall Street Journal.”

The debate will be hosted at the Asia Society (5:00-7:30 pm).

 

Biggest Foreign Bank Liquidity Scramble To ‘Fed Safety’ Ever

The blog Zero Hedge has some interesting market posts. Read this one about the scramble for liquidity in the European banking market. According to Tyler Durden the MS Global bankruptcy came at the worst possible time. Watch out for more liquidity casualties ahead.

Depressing unemployment situation in the US

Paul Volcker: Financial Reform: Unfinished Business

Paul Volcker held a sweeping speech the other day where he covered almost the full regulatory agenda, from Basel 3 implementation, to proprietary trading, shadow banking, money market funds, international imbalances and the “too-big-too-fail” challenge. He claims that the current mess we are inn are primarily due to divergent national economic policies and lack of international coordination. But, finance had a big role in supporting these imbalances and finally they fell over by the sheer size of their internally generated leverage. Vocker is “the grand old man” in central banking and a key G30 persona. So the speech gives a nice overview of the challenges ahead for regulatory policy, although it is short of new policy proposals.

Consumer Credit and Payment Cards

ECB has posted some new WP from a retail payment conference held in May this year. This paper explores why people still use so much cash, despite other and cheaper electronic alternatives are available. They find that the liquidity monitoring is better done with cash, i.e. you know what your remaining balance is, and that this function of cash is important for several liquidity pressed groups of the population. Still, they wonder about the large cross-country differences, where cultural tradition also plays a role. The paper should be of interest for those working in the payment system area, but it has also a greater interest for us all, since payment patterns shape the way banks do business and the way we as consumers adapt.