Archive for June 19th, 2010

Some good speeches

June 19, 2010

There are plenty of speeches I have read lately. Here they go:


Importance of number 23 in policymaking

June 19, 2010

Mervyn King is back. he has been giving dull and very few speeches since the crisis. His earlier speeches were full of humor and great insights.

In his recent speech he throws a couple of  great lines. UK has revamped its financial regulation structure recently. FSA would be scrapped and Bank of England will have both micro and macro prudential roles. Plus there will be a financial policy committee like monetary policy committee. He reviews all this and says how BoE is well suited to do the role. on FPC he says:

This type of regulatory regime, and its objectives and tools, are largely untried and untested. But that is not a reason for not trying and not testing. The Financial Policy Committee will be a first. Over the next few years we will put in place a framework for financial stability to parallel that for role of a central bank in monetary policy is to take the punch bowl away just as the party gets going, its role in financial stability should be to turn down the music when the dancing gets a little too wild.

An apt answer to Chuck Prince and likes!! Read the speech for more.

Ok now back to the topic. What is this 23? At the beginning of the speech he says:

In previous years I have sometimes set this gathering a quiz question. Tonight I want to reverse the process by providing the answer and asking you for the question. The answer is 23, and later I shall ask you – to what question is 23 the answer?

He answers at the end:

Let me now return to the quiz question I posed earlier – to what question is 23 the answer? Several plausible answers come to mind. First, 23 is the number of players in England’s World Cup squad in South Africa. Second, it is of course 23 years since England last won the Ashes “down under”. But neither of these are the right answer which is that 23 years is the age difference between the Chancellor of the Exchequer and the Governor of the Bank of England. In case there is any doubt, George is the younger.

There is an economic purpose for the age difference:

This age difference is highly desirable because the appropriate incentives are to allocate the responsibility of determining monetary policy to the older generation, which has a real interest in preserving the value of money, and the responsibility for fiscal policy to the younger generation, on whom falls the burden of excessive debt.

If we are tempted to leave a large burden of debt for the next generation to pay back, what better incentive mechanism than to have as Chancellor someone who has a longer life expectancy than any previous Chancellor on record? Given those incentives, Chancellor, I look forward to a harmonious coordination of monetary and fiscal policy.

Very well said. It is so true as well.

Gold Standard Blog adds:

My mind went back to the average age of Indian Finance Ministers over the years. Does that explain why India has been unable to achieve any meaningful and sustainable reduction in the fiscal deficit?


Assorted Links

June 19, 2010
  • TTR provides a prescription for emerging economies’ banks – Grow but don’t try rule the world
  • Gulzar points to a snapshot of global imbalances
  • Krugman pulls the list of countries that grew after cutting fiscal deficits. All grew either because of huge trade surpluses via devaluation or central banks lowered interest rates. Both not possible now esp for Euroarea.
  • Alos read Guilt-edged Bonds by Krugman 🙂
  • WSJ Blog points to a paper which says 2009 crisis is by far the worst financial crisis. Also read Donald Kohn Interview
  • Blattman on outcomes of WOrld Bank’s ABCDE conference
  • PSD Blog on the next victim of Random trials hype

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