Monthly Archives: January 2009

Pity President Barack Obama. He won power partly because of the global economic crisis. He himself, most of his fellow citizens and much of the rest of the world agree that the US broke the world economy and now has the duty to fix it. Unhappily, this consensus is false. The crisis is a product of the global economy. It cannot be cured by the US alone. Read more

By Christopher Carroll

Pondering the role of the central bank in a modern economy, one cannot help but be reminded of the apocryphal story of the western explorer who encounters an eastern mystic teaching his disciples that the world rests on the back of a giant turtle. Read more

By Michael Pomerleano

The regulation and supervision of the banking system rest on three pillars: disclosure to ensure market discipline, adequate capital and effective supervision. Read more


Last week, President-elect Barack Obama duly unveiled his American recovery and reinvestment plan. Its title was aptly chosen, for Mr Obama spoke, astonishingly, as if the policies of the rest of the world had no bearing on the fate of the US. He spoke, too, as if a large fiscal stimulus would be enough to restore prosperity. If that is what he believes, Mr Obama is in for a shock. The difficulties he confronts are much deeper and more global than that. Read more

By Stephen Grenville

With the US official interest rate now in effect zero, there is much talk of monetary policy “running out of ammunition” and “pushing on a string”. Has monetary policy become impotent in the US and Japan? Does a similar fate await the rest of us? Read more

By Roger Farmer

For the past seventy years, policy makers have relied on fiscal and monetary policy to combat recessions. Monetary policy works by lowering real interest rates and stimulating private expenditure. Since the nominal interest rate on three month treasury bills has now reached zero in the US, the scope for further easing is limited. This has led to an intellectual tsunami of proposals for a Keynesian-style fiscal stimulus of historic proportions. Read more

By David Backus

My daughter has a T-shirt that reads: “I’m confused. No wait, maybe I’m not.” Obama’s stimulus package has a similar effect on me: “It’s a great idea. No wait, maybe it’s not.” Or maybe I’m just confused. Government spending could very well help get the economy going again. And its example might raise business and consumer confidence: in times of trouble, strong leadership can be a wonderful thing. Read more

By Michael Pettis

The post-1997 global balance is breaking down, and the world is lurching drunkenly to find a stable new balance. Until now, Chinese overproduction has balanced US overconsumption, leading to China’s massive trade surplus and capital account deficit. Inevitably, however, a reduction in US overconsumption, a necessary consequence of the financial crisis, must force a corresponding reduction in overproduction elsewhere, and China, like it or not, will have to bear the brunt of the adjustment. Read more

In tough times, politicians squabble. Out of this heat, light should emerge. Alas, it is not doing so, at least in the UK. The utterances of leading Labour and Conservative politicians do not explain how the UK economy is to emerge from its current quagmire. Read more

By John Eatwell and David Pitt-Watson 

The seizure of wholesale financial markets, distress of retail borrowers and apparent immunity of the financial sector to all remedial measures has produced an air of desperation among policymakers. Read more