Archive for March 24th, 2009

IMF says imposing capital controls could be considered!

March 24, 2009

IMF has been quite active recently hosting seminars, updating forecasts, new publications etc. I came across this IMF note titled Initial Lessons of the Crisis (there is another one titled Lessons of the Financial Crisis for Future Regulation of Financial Institutions and Markets and for Liquidity Management” ).

This note is a good honest appraisal of IMF of its work and views.



Fed Treasury Accord revisited?

March 24, 2009

I had pointed earlier that leading US policymakers are asking to revisit Fed-Treasury Accord. The Accord signed in 1951 led to independence of Fed and made Fed responsible for monetary policy. In this crisis, Fed has increasingly taken roles of Treasury and this has led experts to revisit the accord in order to send signals that independence of Fed will not be undermined.

Seeing these calls, Fed/Treasury have issued a joint press release which clarifies that Fed is responsible for monetary policy and not selective credit policy.

This joint statement reflects the common views of the Treasury and the Federal Reserve on the appropriate roles of the Federal Reserve and the Treasury during the current financial crisis and in the future and on the steps necessary to ensure that both financial and monetary stability will be achieved. 

They agree on following 4 points:

1. Treasury-Federal Reserve cooperation in improving the functioning of credit markets and fostering financial stability
2. The Federal Reserve to avoid credit risk and credit allocation
3. Need to preserve monetary stability
4. Need for a comprehensive resolution regime for systemically critical financial institutions

In the end it says:

In the longer term and as its authorities permit, the Treasury will seek to remove from the Federal Reserve’s balance sheet, or to liquidate, the so-called Maiden Lane facilities made by the Federal Reserve as part of efforts to stabilize systemically critical financial institutions.

Nice to see this development as it leads to some resurrection of Fed image which has been battered badly in this crisis. The Treasury should also walk the talk by issuing further statements on how the various facilities will be removed from Fed’s balance sheet.

Bank of Japan, Bank of England have also started buying fancy assets and would be good if they issue statements like this as well. Central Bank independence is something that needs to be preserved highly in the crisis.

Assorted Links

March 24, 2009

1. Krugman on the new Geithner plan. WSJ Blog points to expert’s comments on the new plan. Mankiw comments as well Finprof Blog points to economists clashes

2. Macroblog analyses  BOE’s growing balance sheet

3. CTB on stingy europeans

4. MR says someone has to be wrong

5. Indicus Blog says it is price correction not deflation

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