The so-called international monetary non-system has four serious weaknesses. They are as follows: first, the absence of incentives to governments to correct global payments imbalances; secondly, the system’s dependence on one national currency, the US dollar, to serve as the major international reserve currency; thirdly, a dysfunctional financial sector and, fourthly, the systemic liability to…
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Under present arrangements, finance too often acts as a malevolent force, rewarding private sectional interests at the expense of the public interest. This is because the globalisation of markets has run ahead of our power to control them. Properly harnessed, global finance could be, again, an enormously powerful force for good. Designing such a harness…
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We need two, inter-related, big reforms – first to the official international monetary system and secondly to banking/financial markets. The international monetary system The first class of reforms needs to start at the beginning – with new reflection on the true nature of money. This is the most fundamental, and yet unavoidable, question raised by…
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Apart from the nomination of Janet Yellen ( a lovely, motherly person) to lead the Fed, what has happened since we departed for our summer/autumn long vacation? As always, the view one takes depends on your perspective. Are you the driver of a car negotiating tricky twists and turns, looking for traffic coming at…
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Central bankers are still trying to rescue their monetary policy models with some additional twists such as forward guidance, but not engaging in the fundamental re-think needed. (If you need better authority than I for this assertion, please do read Bill White in the Dallas Fed series here). Paul Tucker tells us that the new…
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Three major failures contributed to the global financial car crash • There was a failure of banking and bankers – imprudence and irresponsibility, tinged with instances of criminal behaviour, insider trading, mis-selling, deceit and fraud; • There was a failure of central bankers – they were seduced into assuming the self-stabilising properties of markets,…
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Where have all the safe assets gone?
Shortage may usher in new banking system
While it has already become a cliché to say that there is no such thing as a risk-free asset, policy makers and market participants are only just beginning to recognise what a major shift this is. If we are to get back to anything like the traaditional financial system, renewing the supply of such…
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Which anchor for money?
Notes on talk to the Santa Colomba meeting
The supply of money needs to be limited or ‘anchored’ to prevent excessive supply reducing its value. At present money is supposed to be limited by central banks following inflation targeting models. However, this paradigm has lost traction under the strain of the crisis. In effect we have returned to a discretionary monetary policy,…
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Carney rules
Can we expect a restructuring of Britain's MPC?
Interviewed by Anna Edwards on Bloomberg TV this morning (July 17), before the minutes of the MPC’s July 4 meeting were released (my segment starts 5 minutes into the clip), I said that Mark Carney would want the new Bank of England to speak with a clear, single, voice. I said that this…
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The deal to kill reform
Conclusion of the series
From the analysis in the first three parts of this series, the political bargain should have become clear. There are three major players – governments, centralbank\regulators and the mega-banks. As a result of the forces at work, as outlined in Parts 1-3, they have reached an agreement. This is all the more powerful for…
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