Peter Conti-Brown, The Power and Independence of the Federal Reserve (Princeton 2016) A powerful meme has taken possession of popular, and even professional, understanding of the role of the Fed. To wit, political forces (specifically the US President) are supposedly always pushing for excessive expansion, and the role of the Fed (specifically the Fed Chair) […]
In the immediate aftermath of the global financial crisis, most people thought that shadow banking was all in the past, and good riddance! Today, however, it is becoming clear that shadow banking is also in our future, even centrally so. The crisis was just one step toward that future, revealing weakness in order to force […]
A lot of people have speculated about what would happen when the Fed raised rates, and almost all of them have been surprised. One of them is Zoltan Pozsar, who boldly went on record with the view that corporate cash pools of various kinds would shift out of bank deposits into government-only mutual funds, which […]
In his recent paper, “A Lost Century in Economics: Three Theories of banking and the conclusive evidence”, Richard Werner argues that the old “credit creation theory” of money is true (empirically “accurate”), while both the newer “fractional reserve theory” and the presently dominant “debt intermediation theory” are false. For him, this matters mainly because the […]
“Governments propose, markets dispose,” as Charles Kindleberger liked to say. Starting next year the RMB will be included in the official SDR basket, and that inclusion will have some immediate automatic consequences for official government reserve holdings, but that’s all. History tells us that you don’t get to be a world reserve currency just because […]
The BIS and the IMF have each weighed in from the center, representing the perspectives of central banks and central Treasuries respectively. (Interestingly, they don’t agree, see here for a recent sample of the debate.) Now comes the periphery. The new Trade and Development Report of the United Nations Conference on Trade and Development is titled “Making […]
Hot on the heels of the BIS, now comes the IMF Global Financial Stability report, “Corporate Leverage in Emerging Markets–A Concern?”. Yes, a concern, and just in time for the annual meeting in Peru next week. The report is a difficult read, most likely a too-many-chefs problem that muddies the flavor of what could have […]
Hyman Philip Minsky (b. 23 September 1919, d. 24 October 1996) was best known for his Financial Instability Hypothesis of the business cycle, which emphasized the dynamics of business investment finance as a recurring cause of macroeconomic instability (Minsky 1972, 1980). During a boom, the expansion of debt-financed investment spending causes initial “robust” financial structures […]
On 13 September the BIS released its latest Quarterly Review placing emerging market vulnerabilities at centre stage. On 17 September, the FOMC voted against raising its target policy rate, citing near-term headwinds for the US coming from abroad. “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further […]
The Office of Financial Research is out with a new “Reference Guide to U.S. Repo and Securities Lending Markets” which collects together in one place most of what is known, and draws some attention to how much is not known, about this key bit of monetary infrastructure. Kudos to the authors for treating repo and […]