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

Fixed exchange rates

By Daniel H. Neilson

As we prepare to digest the implications of this week's ECB move, it seems worthwhile to take a look at the monetary economics of fixed exchange rates.

There are two basic ways to hold fixed the exchange rate between the money of two communities: peg the exchange rate or create a monetary union. Read more

John Whittaker: Eurosystem balances explained

[The following guest post is by John Whittaker, from whom we have learned much of what we know about how the European payments system works.  See his terrific papers here and here, both of which reward close study.  He has been looking over the last couple Money View posts, and the comments to those posts, and has this to say.] Read more

The IMF and the Collateral Crunch

[N.B.:  This post, while intended to stand on its own, should be understood as part of a sustained analysis that we have been carrying on over a series of posts.  Readers who find themselves baffled by this post may want to start with earlier posts in the thread:  specifically here, and here.] Read more

Is there an ECB?

The ECB has always been the protagonist of the eurozone crisis story. At times it has seemed the arch-villain, coldly standing on principle even as the financial system crumbles around it. At other times it has seemed the hero in waiting, ready to step in at the eleventh hour to bring a moral-hazard-free end to the turmoil with its unlimited balance sheet.

What is becoming increasingly clear, however, is that the plot is taking a twist. The question is no longer whether the ECB is villain or hero, but whether it exists at all. (And today's collateral eligibility expansion doesn't resolve the question.) Let me explain. Read more

First the ECB, then the IMF, Part One

The fact of the matter is that European bank funding markets are collapsing onto the ECB balance sheet.  Forget about the €200 billion of outright peripheral bond purchases--small potatoes.   National central bank exposures, through the TARGET clearing system, now exceed €400 billion, and private bank exposures, through discount lending and deposit facilities, are the same order of magnitude.  

Read more

What a liquidity crisis looks like

Bloomberg's reporters continue their diligent work looking back on the Fed's lending in the subprime crisis. Matt YglesiasYves SmithPaul Krugman, and others have picked up the story. Meanwhile, the world looks ahead to the next development in the eurozone crisis. To read these crises correctly, liquidity should be front and center. It is missing in Bloomberg's work, and it is missing in European policymaking. Read more

Financial (De)Globalization and the European Experiment

Europe is embarked on a grand experiment, managing modern financial crisis without a dealer of last resort, so refusing to follow the lead of the 2008 Fed.  The scientist in me thrills at this opportunity to gather new data from unexplored territory; the citizen in me quails at the brinksmanship, what Martin Wolf has called "just in time, just enough". Read more