January 2012

Bank or no bank?

A money view of SDRs

In a market economy, when you need something, you go out and buy it. Liquidity is no different, in that respect at least. If it is market liquidity that you need, you go to a dealer, who stands ready to buy what you are selling. You pay for the convenience, though—the dealer is getting more for the same asset than you are. If it is funding liquidity that you need, you go to your bank, who stands ready to lend. You pay for the convenience, though—the bank is paying less for its funds than you are. Read more

Why did the ECB LTROs help?

From a money view perspective, the central issue is settlement of TARGET balances between national central banks within the Eurozone, and the key is to understand TARGET balances as a kind of interbank correspondent balance.  What I want to suggest is that the ECB's Long Term Refinance Operation can help settle the troublesome TARGET balance overhang.

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Delicate balance

The current account still matters, but other things do too, and maybe more. In light of recent focus on gross flows, here and elsewhere, I want to argue for the language of the balance of payments. This language has a quaint feel to it, and my sense is that economists view it as archaic and outmoded. I am certain, at least, that one can get through grad school with no fluency in it. Read more

Does the Current Account Still Matter?

The title is the same as that of Maury Obstfeld's Ely Lecture, delivered Jan 6 at the AEA meetings in Chicago.  Yours truly was at the meetings mainly to deliver a paper on "Three Principles for Market-Based Credit Regulation", about which more in a later post.  And for most of the rest of the time I was locked in a hotel room interviewing candidates for an assistant professor slot at Barnard College (which gave me a good overview of the current state of macroeconomics, again fodder for a later post).   Read more

Nobody understands money

A correspondent sends us to a column of Paul Krugman's that asserts that "nobody understands debt". Fair enough. To my mind, this line stands out:

And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors.

Heterodoxy and The Economist

When I started this blog, almost exactly one year ago today, my thought was to provide commentary on the financial events of the day, using the Financial Times as my primary source of information about those events.  I felt, as Mr Skinner writes in his letter today, that the public does not know much about banking.  He recommends starting from the text "Where Does Money Come From?", which seems to me fine advice.  But the hard thing, as always, is applying such textbook knowledge to the real world events of the day; that's what I was determined to do in the blog. Read more