In Can Financial Markets Be Controlled?, Howard Davies demonstrates his long experience in, and careful thinking about, the instabilities of financial systems. Possible reforms are weighed sensibly and realistically in this short (109 pages) and substantive book. The author displays a refreshing humility about what the human mind is capable of when faced by the uncertainty of the financial future. He points out that “few anticipated the crisis” that began in 2007, and that the “judgments and forecasts” of economists, regulators, and central bankers, “widely shared at the time,” turned out to have been “catastrophically wrong.” Whose fault was it all? Who…
Donald Boudreaux has done us the favor of writing a popularized primer on the foundational thought of the great economist, Friedrich Hayek. His timing is good. For sadly, as Vaclav Klaus, the free-market president of the Czech Republic from 2003 to 2013, says in the book's foreword: “State interventionism is back and growing.” The once-vivid lessons of the failures and crimes of communist regimes are fading in the group memory, 25 years after the collapse of the Berlin Wall and its accompanying socialist ideology. Dirigiste government bureaucrats are busy giving orders, arrogantly convinced that they know what is economically best for…
The Swiss National Bank (SNB) has just announced an eye-popping net loss for the first quarter of 2015: 30 billion Swiss francs, or $32 billion. A participant in its recent shareholders meeting shortly before the announcement told me “the directors looked very stressed.”
How does a money-printing central bank lose money?
The “Audit the Fed” proposal of Senator Rand Paul (R-Ky.) elicits a surprising amount of emotion, from opponents and supporters alike. Why should this be?
“Monetary policy” purposefully sounds technical and dull—you like it that way if you want to keep it the domain of supposedly objective experts who don’t want any mere politicians interfering in their elite central banking club. But money affects everybody and is an emotional topic, especially if the Fed is on purpose crushing you, as it currently is doing to savers, in order to benefit borrowers and speculators.
Martin Wolf’s The Shifts and the Shocks—What We’ve Learned—and Have Still to Learn—from the Financial Crisis is a long book. Even for those of us fascinated by financial cycles and crises, it takes patience to read through it.
Amidst the long discussion are a lot of provocative financial thoughts, intertwined with a constant, naïve faith in the future superior knowledge and future ability of central bankers and other bureaucrats successfully to tell other people what to do. Wolf never claims this knowledge and ability have been demonstrated in the past—he fully admits that experience demonstrates the opposite–but he never seems to doubt that it can save us in the future, if these solons just get better economic ideas. In this way, he misses the most difficult and interesting element of the problem: the inescapable uncertainty and unknowability of the future.
How much do you know about the inflationary financing, in which the then-new Federal Reserve led the parade, that backed America’s participation in World War I? How about the high-inflation postwar aftermath? How about the steep and painful, although brief, depression (that’s depression, not recession) of 1920-21? The report of a congressional joint commission of the day concluded that “the debacle of 1920-21 was without parallel”—without parallel but now forgotten. Most importantly, how much do you know about the general lack of government interventions in that depression, but the rapid recovery and renewed growth that followed it? If you are an…
In the financial crisis of 2007 through 2009, the Federal Reserve expanded its balance sheet to finance the bust, just as intended by its legislative fathers of a century ago. They did not, of course, intend for their creation to have stoked the housing bubble in the first place. This dramatic action to make up for its own mistakes was not a first—recall the Fed’s celebrated anti-inflation strategy of the early 1980s, a reaction to its 1970s blunders that had created the Great Inflation of that previous time.
The latest crisis has been over for five years, but the Fed’s balance sheet is more bloated than ever. Its much-discussed “taper” only slowed down the rate of bloating.
When government financial officers, like Treasury Secretaries and Fed Chairmen, stand at the edge of the cliff of a market panic and stare down into the abyss of potential financial chaos, they always decide upon government intervention. In the first place, nobody wants to go down in the ignominy of being the ones who stood there and did nothing in the face of a financial collapse. Secondly, nobody will or should take the risk of triggering the unnecessary financial and economic destruction of a debt deflation. So they always do and should intervene. In a panic, the desire for return on…
A conference was held at the American Enterprise Institute on March 20, 2014 on the question: Is the Federal Reserve a philosopher king or servant of the treasury? Alex Pollock, a frequent contributor to Law & Liberty and participant in the AEI discussion, offers here in condensed form the arguments and the instructive history presented.
Charles Calomiris and Stephen Haber, combining their scholarly command of banking and political institutions, have published a book full of fertile ideas, instructive histories of the evolution of a number of banking systems, and provocative interpretations of the co-dependency between banks and governments.