The Federal Reserve has now openly adopted a two percent inflation target, with both Chairman Bernanke and the Federal Open Market Committee publicly committing to holding inflation at that level. Though not a problem today, this two per cent target represents a policy trap that will undercut the possibility of future wage increases despite on-going productivity growth. That promises to aggravate existing problems of income inequality and demand shortage. Read more
Roger E A Farmer, Distinguished Professor and Chair, UCLA Department of Economics
The US recovery has stalled, the UK has fallen back into recession and most of Europe is mired in a debt quagmire to which there appears to be no quick exit. It is against this background that Charles Evans, president of the Federal Reserve Bank of Chicago, has come out aggressively in favor of additional Fed actions. Read more
Simon J. Evenett, Professor of International Trade and Economic Development and Academic Director of MBA programmes, University of St. Gallen, Switzerland
Christine Lagarde, IMF managing director
On the face of it, the recently agreed expansion of the IMF’s lending capacity suggests that the IMF is back in business. Since the global economic crisis began no UN or other global public agency has had their resources expanded by governments as much as the IMF. The IMF has also been at the centre of several crisis-era surveillance and reporting initiatives. So is the IMF now even better placed to better contribute to the recovery of the global economy? Maybe not. Read more
By Olafur Arnarson, Michael Hudson and Gunnar Tomasson
Today, from Greece to Iceland, governments are acting as enforcers or even as collection agents on behalf of the financial sector — and Iceland stands as a dress rehearsal for this power grab.
The problem of bank loans gone bad has thrown into question just what should be a “fair value” for these debt obligations. The answer will depend largely on the degree to which governments back the claims of creditors. The legal definition of how much can be squeezed out is becoming a political issue pulling national governments, the IMF, ECB and financial agencies into a conflict, pitting banks, vulture funds and debt-strapped populations against each other. Read more
Ben Bernanke, US Federal Reserve chairman, has announced that the Fed is about to go on a $600bn spending spree by buying $75bn of treasury bonds every month for eight months. Not all of the members of the Federal Reserve Open Market Committee agree that a second round of quantitative easing is a good idea. Read more
By Michael Pomerleano
In response to the global financial crisis that began in mid-2007, governments around the world are introducing reforms designed to address the way financial markets operate. Although it will take many years to implement the multitude of rules and regulations, we know the contours and can focus on the question of whether the changes will instill a safer system. The answer is likely to be a disappointing no.
To date, reform in financial regulation and supervision has focused mainly on large, regulated institutions. Three examples are the just announced Basel III capital rules, much of the US Dodd-Frank Act, and the US Federal Reserve’s revamping of its large holding company supervision.
Some attention has also been paid to the systemic source of risk, notably in Dodd-Frank’s provisions for prudential supervision of payments, clearing, and settlement systems. Yet, shoring up the capital of the banking system is equivalent to fortifying the Maginot Line while the financial system has changed. Read more