Federal Reserve

By Ronald McKinnon

This is an updated version of Liquidity traps and the credit crunch, published in this forum on August 13, 2009

Since the onset of the credit crunch and global downturn, governments everywhere have responded to the shortfall in aggregate demand in a textbook Keynesian fashion. They have adopted fiscal stimuli: ramping up government expenditures and cutting taxes. Central banks followed the lead of the Federal Reserve by driving down short-term interest rates toward zero: almost exactly zero for overnight interbank rates in the US, Japan, and Canada, and generally less than 1 per cent in Europe into the autumn of this year. Read more

By Thomas Palley

Over the past year the global economy has experienced a massive contraction, the deepest since the Great Depression of the 1930s. But this spring, economists started talking of “green shoots” of recovery and that optimistic assessment quickly spread to Wall Street. More recently, on the anniversary of the Lehman Brothers crash, Ben Bernanke, Federal Reserve chairman, officially blessed this consensus by declaring the recession is “very likely over”. Read more

From the FT:

Michael Milken: Prosperity rests on human and social capital Read more

Financial stability regulatory architecture is best realised on a national level.  Read more

Economist’s View: The Dangers Ahead for Bernanke

The Baseline Scenario: Which Bernanke? Whose bubble?  Read more

By Ronald McKinnon

The global credit crunch which began in 2007 but became acute in 2008, originated from the collapse in the bubble in US house prices and, to a lesser extent, in European ones.

Unsurprisingly, the declining home values made people feel poorer, so consumption spending fell. This fall in aggregate demand in the US and Europe reduced demand for imports and caused a parallel slump in the rest of the world, including in emerging markets. Read more

By Michael Pomerleano

Martin’s article “The cautious approach to fixing banks will not work” stimulated me to raise a fundamental issue that is preoccupying me as the crisis unfolds and to which I don’t have an answer. Read more

By Carolyn Sissoko

US Federal Reserve

US Federal Reserve

In recent years many large financial institutions have become used to the idea that governments stand ready to rescue the financial system when it gets into trouble. Swift regulatory intervention in the US whenever there was a systemic event encouraged this view. Over time, confidence in the government’s ability to act as the financial system’s executive manager resulted in a transfer of the responsibility for controlling systemic risk from the banks to the government. Read more

Pinn illustration

Spring has arrived and policymakers see “green shoots”. Barack Obama’s economic adviser, Lawrence Summers, says the “sense of freefall” in the US economy should end in a few months. The president himself spies “glimmers of hope”. Ben Bernanke, chairman of the Federal Reserve, said last week “recently we have seen tentative signs that the sharp decline in economic activity may be slowing, for example, in data on home sales, homebuilding and consumer spending, including sales of new motor vehicles”. Read more

By Michael Pomerleano

My education (Harvard Business School and economics department) and professional experience prime me to advocate finance’s role in the growth of economies. Politically, I am moderate and not a flaming liberal. However, the conduct of professionals in the financial crisis leads me to reassess these beliefs. I am not alone. Read more