Monday, 20 November 2017

Author Archives Marius Gustavson

The Perils of Monetary Management

July 9, 2010
in Blog

Recently the Chinese authorities announced an end to the dollar peg and a move towards a more flexible exchange rate, as commented upon in a previous post. However, there are fears among Chinese officials that this could lead to a wide range of problems, including speculation and hot money inflows, as well as undermining the […]

Read More

Sound Money Insights from Fed President

June 24, 2010
in Blog

Kansas City Fed President Thomas Hoenig is a lone dissenter at the Federal Open Market Committee (FOMC)–the central bank’s main policymaking body. At the June FOMC meeting, for the fourth time in a row, he dissented to the Fed’s statement that economic conditions “are likely to warrant exceptionally low levels of the federal funds rate […]

Read More

Chinese Currency Reform

June 21, 2010
in Blog

The Chinese government announced this weekend that they would move towards a greater degree of flexibility in the exchange rate. As stated by by the People’s Bank of China: “In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People’s […]

Read More

Greenspan Warns of Fiscal Profligacy

June 18, 2010
in Blog

In a Wall Street Journal op-ed, former Fed Chairman Alan Greenspan warns of U.S. fiscal profligacy, in part fuelled by the current low borrowing costs of the government: “Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of […]

Read More

Greek Government Junk Bonds

June 18, 2010
in Blog

The Greek crisis rolls on.  This week yields on Greek government bonds rose by almost 3/4 of a percentage point to 9.06 percent as Moody’s–a rating agency–downgraded its debt to junk bond status citing “substantial” risks in connection with the three-year Greek  program for economic reform. Furthermore, being downgraded to junk bond status also means […]

Read More

A Spanish Banking Crisis in the Making

June 17, 2010
in Blog

Spain was hit hard by the financial crisis. Like the U.S. and the UK, Spain experienced high capital inflows and rapidly rising housing prices in the years leading up to the crisis. And like the U.S. and the UK it is now stuck with a struggling banking sector and bloated public finances. Spanish banks have […]

Read More

European Weakness Is Fuelling U.S. Profligacy

June 16, 2010
in Blog

The European debt crisis has demonstrated the painful costs of fiscal profligacy and short-sighted Keynesian stimulus. In the words of financial historian Niall Ferguson, “there is no such thing as a Keynesian free lunch,” warning that a “greek crisis” could come to America. Washington Post columnist Robert J. Samuelson says the European crisis should be […]

Read More

Chile Starts Monetary Tightening

June 15, 2010
in Blog

Chile has rebounded strongly from the global recession, in spite of the devastating earth quake that hit early in 2010. In response to the financial crisis, the monetary authorities cut its key lending rate from 8.25 per cent in September 2008 all the way down to 0.5 percent in July 2009 where it has stayed […]

Read More

The Return of Financial Repression?

May 25, 2010
in Blog

Financial repression was used extensively by governments in the post-war period and is still common today in emerging markets such as China. As Cato scholar James Dorn writes in a recently posted commentary, “Financial repression is a hallmark of China’s market socialism.” Given developments in the wake of the financial crisis, the big question is […]

Read More

The Fed’s Balance Sheet

May 21, 2010
in Blog

The Wall Street Journal has created a good graphic illustration displaying the development of the Fed’s balance sheet during the financial crisis. Assets on the balance sheet are currently $2.333 trillion, of which the main part consists of mortgage-backed securities, Fannie and Freddie debt and government securities. Some noteworthy developments: During the first phase of […]

Read More

The Euro – a Greek Drachma in Disguise

May 20, 2010
in Blog

The Euro keeps tumbling as international investors are loosing faith in the Eurozone. The currency has so far fallen 14 percent against the dollar this year. There is fear that contagion could trigger “Greek” debt crises among other EU countries with weakening fiscal positions, and that European banks could realize substantial losses as a result. […]

Read More

The Return of British Stagflation?

May 19, 2010
in Blog

The UK inflation rate jumped to 3.7 percent last month, way above the Bank of England’s 2 percent target. This comes as a surprise to both the monetary policymakers of the BoE and to the newly formed coalition government. The Bank’s Governor Mervyn King explains this sudden rise in consumer prices in a letter to […]

Read More

Nouriel Roubini – Return to the Abyss

May 18, 2010
in Blog

“If fiscal imbalances are not addressed through spending cuts and revenue increases, only two options remain: inflation for countries that borrow in their own currency and can monetize their deficits; or default for countries that borrow in a foreign currency or can’t print their own. Thus, the recent events in Greece, Portugal, Ireland, Italy, and […]

Read More

Stephen Roach Calls for a New Monetary Policy Regime

May 18, 2010
in Blog

Stephen Roach, Chief Economist of Morgan Stanley, have been a critic of the Fed for many years. In a Financial Times op-ed he makes the case for exiting the current monetary policy regime once and for all: “it is high time to banish the moral hazard of macro policy – the false sense of security […]

Read More

Fed Monetary Dissident Thomas Hoenig

May 17, 2010
in Blog

Thomas Hoenig, a voting member of the Fed’s interest rate decision body, the Federal Open Market Committee (FOMC), has on several occasions expressed concerns about the direction of U.S. monetary policy. During the last year, he has been a lone voice of dissent at FOMC meetings. This weekend’s Wall Street Journal features an interview with […]

Read More

Europe’s Freezing Money Markets

May 17, 2010
in Blog

“Money markets are showing rising levels of mistrust between Europe’s banks on concern an almost $1 trillion bailout package won’t prevent a sovereign debt default that might trigger a breakup of the euro.” “The cost to hedge against losses on European bank bonds is 63 percent higher than a month ago. Investment-grade corporate debt sales […]

Read More

Roche – Not the way to solve the debt crisis

May 13, 2010
in Blog

“the world is facing a major sovereign debt crisis that will squeeze economic growth and possibly deliver a series of debt default events down the road. Sovereign debt issuance is now sucking up 25 per cent of available world savings and that will squeeze the ability of the private sector to invest in productive opportunities.” […]

Read More

Carmen Reinhart on Debt Crises

May 12, 2010
in Blog

University of Maryland economist Carmen Reinhart recently published a book with co-researcher Kennet Rogoff presenting several hundred years of data on financial crises. The title This Time Is Different alludes to the mentality that often develops during unsustainable booms–namely the belief that the old rules of valution does not apply anymore because of some technological […]

Read More

The Euro-Crisis: Fear Is Back in Play

May 9, 2010
in Blog

“Now, fear is back in play,” said William H. Gross, managing director of Pimco, as the European crisis is sending shock waves into financial markets around the world. There is fear that the sovereign debt crisis could freeze up the euro-zone interbank market, in a replay of the credit crunch of 2007-2008. Several major European […]

Read More

Europe’s Political and Economic Crisis

May 8, 2010
in Blog

Some interesting news items this week on the European crisis: A “wild week” (Financial Times) “Fears of eurozone sovereign risk contagion to banks, tighter monetary policy in China and surprise intraday selling by electronic trading systems united to deliver the worst week for global equities since the height of the financial crisis.” “For investors, the […]

Read More

Hayek’s Contribution to Monetary Theory

May 8, 2010
in Blog

“Those who wish to preserve freedom should recognize, however, that inflation is probably the most important single factor in that vicious circle wherein one kind of government action makes more and more government control necessary. For this reason, all those who wish to stop the drift toward increasing government control should concentrate their efforts on […]

Read More

Another Financial Crisis in the Making

May 7, 2010
in Blog

World-wide stock markets plunged yesterday as the ongoing sovereign debt crisis in Europe is worsening. The Dow fell 1000 points–its worst ever intraday drop–before rebounding, but still ended down more than 3 percent (as did the S&P 500 and Nasdaq). Other factors played into this incident as well–a mistaken sell order from Citigroup, unfortunate consequences […]

Read More

George Selgin – Central Banks as Sources of Financial Instability

May 6, 2010
in Blog

“The present financial crisis has set in bold relief the Jekyll and Hyde nature of contemporary central banks. It has made apparent both our utter dependence on such banks as instruments for assuring the continuous flow of credit in the aftermath of a financial bust and the same institutions’ capacity to fuel the financial booms […]

Read More

Lawrence H. White – What Type of Inflation Target?

May 2, 2010
in Blog

“For much of monetary history, inflation targeting was unnecessary. There was no need to worry about constraining the central bank’s inflationary proclivities because no central bank existed. The quantity of basic money was constrained by the mints’ commitment to full-bodied gold and silver coinage (at least where the mint-owners lacked monopoly status or chose not […]

Read More

Lawrence H. White – Sound Money and Free Banking

May 2, 2010
in Blog

On April 19, 2010, the Atlas Economic Research Foundation and the GMU Economics Society hosted a lecture by Lawrence H. White. Dr. White presented on the subject of sound money, it’s importance and historical origins, and how a free banking system produces a more reliable currency than that of the Federal Reserve. The video of […]

Read More

Gene Smiley – Rethinking the Great Depression

May 2, 2010
in Blog

In this great little book, U.S. economic historian Gene Smiley presents the most recent economic historiography on the Great Depression. He concludes that the crisis was caused by the economic dislocations of World War I along with the attempts by the Bank of England, in conjunction with the monetary authorities of the U.S., to erect […]

Read More

What Austrian Economics Can Tell Us about the Crisis

April 28, 2010
in Blog

The recent financial crisis has called into question several basic tenets of mainstream macroeconomics. In the words of William White, former chief economist of the Bank for International Settlements (BIS), “the prevailing paradigm of macroeconomics allows no room for crises of the sort we are experiencing.” White and his BIS colleagues were among the few […]

Read More

Lessons from the History of Financial Regulation

April 27, 2010
in Blog

Charles W. Calomiris, who is Professor of Financial Institutions at Columbia Business School and a visiting scholar at the American Enterprise Institute, has recently published a paper on the lessons that can be drawn from the history of financial regulation. “The Political Lessons of Depression-Era Banking Reform” looks more specifically at the regulatory response the […]

Read More

Overdose – Documentary on the Financial Crisis

April 26, 2010
in Blog

On May 17, the Cato Institute will host a premiere of a new documentary on the financial crisis–Overdose. The trailer can be seen here. The documentary is based upon Swedish writer Johan Norberg’s book Financial Fiasco. Cato describes Overdose as follows: “This 46-minute documentary is a fast-paced look at how we got into the financial […]

Read More

Lawrence H. White – The Clash of Economic Ideas

April 20, 2010
in Blog

George Mason University economist Lawrence H. White is writing a book on The Clash of Economic Ideas. Last summer he gave a lecture, published as a video by New Media, in which he briefly presents the outline of the book, before going more in-depth through one of the chapters, analyzing the differing views among economists […]

Read More

Ferguson and Rogoff on the financial crisis

April 13, 2010
in Blog

In this video panel on Bloomberg.com, economic historian and author The Ascent of Money, Niall Ferguson, discusses the financial crisis and global recession with economist and author of This Time Is Different, Kenneth Rogoff. They both warn that the global crisis is not yet over, and that a fiscal crisis may very well impact the […]

Read More

Florin Aftalion – The French Revolution: An Economic Interpretation

April 12, 2010
in Blog

In this monograph, French economist Florin Aftalion sets out to rectify a great omission in most historical accounts of the French Revolution, namely to look at how economic, and especially monetary forces helped shape the dynamics of the revolution. Book description: “The economic history of revolutionary France is still a neglected area in studies of […]

Read More

John Munro – The Monetary Origins of the ‘Price Revolution’

April 8, 2010
in Blog

In this paper, John Munro of the Department of Economics, University of Toronto revisits the historical debate on the origins of the price revolution of the 16th century. Though some historians and economists have claimed that this event was caused by population growth, Munro clearly demonstrates that the origins were monetary and not demographic. He […]

Read More

The Global Debt Crisis

March 12, 2010
in Blog

Recent developments have clearly demonstrated that “there is no such thing as a Keynesian free lunch.” The grim story of fiscal crises afflicting major economies is something that should not be taken lightly. It could happen sooner than most people think if the governments of the US and other debt-ridden countries don’t get their fiscal houses in order.

Read More

A Doomsday Cycle

March 1, 2010
in Blog

Economists Peter Boone and Simon Johnson think the economic system could be stuck in a “doomsday cycle”: “Over the last three decades, the US financial system has tripled in size, as measured by total credit relative to GDP. Each time the system runs into problems, the Federal Reserve quickly lowers interest rates to revive it. […]

Read More