Financial Stability

Banks as creators of money

In conversation recently, I was called upon to defend the claim that banks are in the business of creating and destroying private money. This has been for me a working hypothesis for so long that I was unable to respond effectively or cogently to the argument. My interlocutor followed up in e-mail with a Cowles Foundation paper by Tobin in support of her case. Here is my response to Tobin, hopefully better articulated than I managed on the fly. In this post, I'll stick to the theoretical claim (the practical context was bank capital requirements).

I agree wholeheartedly with Tobin's dismissal of the Read more

Mehrling on Soros


The text below is the comment I offered on Mr. Soros' opening speech at INET's Berlin Conference April 12, 2012.  The text of Mr. Soros' own speech is here.  Video of the entire session is below--my bit starts at 55:00.


  Read more

Explaining 'New Economics' with Two Diagrams

I think I am on the track of what 'New Economics' is, and one could roughly sum up two days of presentations in two diagrams:

 vs.  Read more

@INET Berlin: Doing the actual work

While yesterday presented a number of frontrunning scientists discussing current economics and state of the economy in general, academic terms, today starts with ECB executive board member Asmussen. Interstingly, the ECB is quite a bit more positive about the development of the crisis and about the measures taken by politicians. But maybe that's just politics. It also gets more technical. Key message: 1) LTRO bought time, it is not the solution, 2) Now politicians should adjust budgets to "sustainable paths" - but no timeline given. Who could disagree?
But then, briefly and only at the end, a plea for fiscal and political integration, addressed at Germany principally. Nice.

World Without Money Reconsidered

FT Alphaville has picked up on my friend James Sweeney's latest, and since James cites the latest writings by other friends Zoltan Pozsar, Manmohan Singh, as well as my own most recent, the piece reads like a discussant's comments on a shadow banking symposium. Read more

Renminbi Swap Lines

Last week the central banks of China and Australia announced the creation of a $31bn currency swap line. Like every such agreement, it was hailed as another step towards the renminbi's displacement of the dollar as the world's reserve currency. Are the renminbi swap lines in fact a genuine step forward for the internationalization of the RMB? Read more

China’s FX Flow Framework

During the “Two Sessions”, China’s Premier Wen Jiabao and the State Administrator of Foreign Exchange Yi Gang both said that the Renminbi might be close to the “equilibrium” level. This top-level comment could probably mark a much lower Renminbi appreciation this year and the advent of RMB’s two-way floating process. Last September, the long-standing consensus of one-way Renminbi appreciation was challenged for the first time since 2005 when the PBoC allowed Renminbi to appreciate against USD. Afterwards, in the onshore market, USDCNY hit lower trading bound set by the PBoC for 12 consecutive days in December; FX purchase by the banks dropped for three straight months in Q4. Read more

UK Budget Appeals to Adam Smith's Approach to Taxes... Sort of

Yesterday the Chancellor of the Exchequer (or UK 'finance minister') gave his annual budget speech where UK fiscal policy is set for the coming years. In announcing his tax changes he name-dropped Adam Smith as the inspiration for his objectives on tax:

Two hundred years ago, Adam Smith set out the four principles of good taxation - and they remain good principles today. Taxes should be simple, predictable, support work, and they should be fair. The rich should pay the most, and the poor least.  George Osbourne, 21 March 2011