Archive for the ‘Central Banks / Monetary Policy’ Category

Do Central Bankers really believe what they say?

October 5, 2015

Nice interview of Patrick Barron of Mises Institute. Exposes all the fancy talk done by central bankers across the world:

Our guest this week is Patrick Barron, a professor of economics and a student of global currency markets. Patrick and I dissect the Fed’s big announcement this past week not to raise interest rates, and consider whether Janet Yellen and other central bankers really believe in what they’re doing.

Is it all just to save themselves from the judgment of history, by kicking the can down the road? Have they read, or even considered, Austrian arguments on money and banking? Or are they simply so wedded to Keynesian orthodoxy that they literally don’t know what else to do? And what type of precipitating events might spell the end of US dollar imperialism?


Fed’s ZIRP policy and Banks’ Net Interest Margins

September 30, 2015

Why is it that banks want Fed to increase rates? Some say, that higher rates will lead to higher net interest margin for the banks.

But Noah Smith says there is hardly any linkage between the two.


Why the Fed buried monetarism?

September 24, 2015

Anatole Kaletsjy of Gavekal Dragonomics has an interesting piece on recent Fed decision to keep rates unchanged.

He says Fed does not believe in monetarism anymore. It has gone back to the earlier idea of trade-off between inflation and unemployment. It realises that monetary policy has a much deeper impact on unemployment than shown by earlier research:


Three Truths for Finance..(and three lies of Harvard)

September 23, 2015

Mark Carney of BoE has a speech on the topic.

He starts with three lies related to Harvard Univ:


How Do We Get Rid of the Fed? The great money debate is finally happening

September 23, 2015

Applies to central banking in general.

Jeffrey Tucker Director of Foundation of economics education has a piece on the topic. He points to how this time elite central bankers met with protesters at the (ill now) famed Jackson Hole Conference. There is also a parallel opposition conference running critically looking at monetary policy:


So much noise over FOMC meeting and yet nothing comes out of it..

September 18, 2015

Fed again chose not to cut rates.

I mean how many times we have had this situation. Not to forget it started way back in 2010 when Bernanke made exit policy really popular. Since then, it has been looking for a gate to exit not able to find one.  Some central banks which did find the exit gate (ECB, Riksbank, Norges Bank, RBA, Australia in 2010-11) found the weather really bad outside and forced themselves back in the theatre,

It has been a while this blog has read any of the central bank policy statements. It is just the same old story over and over again. But still the attention and hyoe keeps rising and getting shriller by the day. Infact after many thousands of years when records on Fed are going to be read by then historians they will surely wonder what all this noise was about. They will compare statements after statements to figure why there was so much attention and noise on this FOMC animal. They will be disappointed to find any correlations and wonder what the world was thinking back then. Same for other central banks as well.

So it took quite something to read the FOMC statement which was released last night. Given the noise one just wanted to see what was it all about. The statement just read like those old ones saying we are trying to do so and so for US economy. I mean how little things have changed really.

The problem is actually much bigger. It is not about whether Fed should cut or ease rates. This is just a much smaller question in the scheme of things. A much bigger question is whether we should allow some 10-12 people to determine economic fortunes of the entire world? The same applies to other central banks in their countries as well. Much of history of money and monetary policy is tragedy and recent events are just a continuation of the same.

Jeff Deist of Mises Institute sums up the breaking news:


While price fixing is generally considered illegal, when the central banks do it, it is called capitalism…

September 16, 2015

Jeff Deist of Mises Institute has a piece which criticises Federal Reserve setting interest rates. But the criticism applies to all central banks generally.

He says generally economics says price fixing by any central agency is a bad thing and deemed as illegal. But when central banks fix interest rates it is called capitalism:

Economists, bankers, fund managers, and investors around the world are absolutely fixated on the Federal Reserve’s anticipated announcement this week, with many fearing that a rate hike could trigger more shocks like the recent Black Monday selloff.

In a world of social media and 24-hour news cycles, it’s fair to say Wednesday’s FOMC meeting in the Eccles Building has been the most widely reported and discussed central bank action in history. But missing from the coverage is one fundamental point: “monetary policy” and bureaucratic control over interest rates is not capitalism, it is outright centralized planning.

What else can we call the orchestration of a pivotal price signal in the worldwide economy by 12 individuals sitting in one room? If one accepts the Fed’s role in setting interest rates, it’s hard to understand where and when to draw the line. 

Why not prices of goods, services, and wages? If experts can determine the price of money, why can’t they determine the price of a bushel of wheat or an automobile? When the former Soviet Union’s State Committee on Prices attempted exactly that, western capitalists scoffed. Yet we accept centralized monetary planning as part and parcel of free markets!

As this blog keeps saying nothing is more ironical than seeing central bankers talk about free markets/capitalism..


Fed up with the Fed (and macro and central banking and…)

September 10, 2015

Prof Joseph Stiglitz has a piece on being Fed with up Fed. He is in the camp that Fed should not increase rates. It is too soon given the global volatility and uncertain trajectory of world economy:


Women on currency notes

September 4, 2015

Christopher Coakley of IMF has a nice article on the topic:

When it comes to money, it is a man’s world. Or so it seems, judging from the faces of the great and the good who adorn the vast majority of countries’ bills and coins. Yet some countries do use their currency to honor the contributions of their female leaders, artists, and other trailblazers—past and present. The United States is a latecomer to the club, announcing in June 2015 that it would feature a woman on a banknote for the first time in over a century. So who are the women getting recognition—and why does it matter?

Good bit of info.


Why Paul Tucker joined Bank of England? (Some insights from central bank history)

September 4, 2015

Gillian Tett has an interesting piece which has been abstracted from her recent book on silos in economic thinking.

Paul Tucker rose to become the deputy governor of Bank of England. The article has a story on why he joined the central bank. Just for public service!:


What does the public know about monetary policy?

August 26, 2015

Carin van der Cruijsen, David-Jan Jansen, Jakob de Haan have a piece on how central banks can improve their communications with the public.

Why Rand Paul wants more thorough Fed audits?

August 24, 2015

Central banks in other countries should consider themselves really lucky that they do not have to deal with politicians like Ron Paul (and his son Rand Paul). Moreover, they do not have as troubled a central bank history or have higher number of scholars polishing their central bank history.

Central bankers in other countries can keep politicians quiet by just showing off their US university pedigree. It is just so easy really.  But these games do not work on US politicians as most themselves come from such univs. The grilling a Fed official goes through is way higher than what central bankers go through in other countries. In latter, there is no grilling really.

Here is Rand Paul writing on why he thinks Fed should be audited more thoroughly.

How a secret meeting at a secluded resort led to creation of Federal Reserve

August 18, 2015

A nice article by Jessie Romero of Richmond Fed.

The biggest irony of Fed is how it rose from being really an unwanted organisation to the most powerful central bank in the world. Econs/experts ridicule when some politician makes a case for ending the Fed. But the bigger point is this is the history of central banking in the country. A country which was built by states uniting together has always been sceptical of centralised finance. They had two editions of central banks (1791-1911 and 1916-36) but allowed the 20 year charters of both to expire. Whereas in UK, BoE was also on a charter but it kept getting renewed. So from 1836 onwards there was no central bank in the country and hardly any talk of having one was entertained.

Given the scepticism, any such effort to form a central bank in US is likely to be a highly secretive clubby affair. This was indeed the case as the central bank was given shape in Jekyll Island in 1910. A group of financial elite got together and planned a central bank for US in a meeting so secretive that its list of members is not fully known. Also, the members actually addressed each other by first names to ensure no one notices/overhears them.

The name of Jekyll Island is also ironical given the setting as one immediately connects to the story of Dr Jekyll and Mr Hyde. Most econs present the Fed as Dr Jekyll which has done a lot of good to US economy. But then there are people from Austrian school and some politicos who feel Fed is just Mr. Hyde which has caused far more harm than is visible.

Even the name suggested for Fed was given to hide the fact that it was a central bank. The first proposed name was Reserve Association of America which was later changed to National Reserve Association and finally to Federal Reserve.

So this piece by Romero gives a broad account of how things piled up at the famous island.


Milton Friedman and monetary freedom….

August 11, 2015

George Selgin has a food for (economic) thought piece on Prof. Friedman.

Free markets people esp those in Austrian school camp usually crticise and side from the Chicago School on issues of mon economics. Whereas the A school believes in free banking without a central bank, the stance of ‘C’ school is not as clear. Friedman always favored the central bank using his money supply rule preferably by a computer. So, he was more in favor of central banks which was surprising given his free market thinking on everything else.

Prof. Selgin does not think so. He says Friedman did move towards free banking overtime as well:


RBI is not a free agent. It never has been, nor should it ever be

August 7, 2015

The debate over India’s central bank independence continues. In many ways, the term central bank independence is an oxymoron. How cam an entity which gets monpolised priveleges to circulate fiat currency be independent from the govt? Why will govt allow such an entity to be free of it? Moreover, any central bank’s legitimacy comes from the government. It is fully dependent on the govt for all the privileges accorded to it.

Economists famous for creating imaginary (and wrong) ideas, have been quite successful at creating this notion as well. By removing economic history from textbooks, they have succeeded in blinding people towards this idea of CB independence.  If history is taught, students will learn why these centralised institutions were created mainly to serve the govt. At best a central bank can be autonomous to make decisions but even here make no mistake, the govt is in full control. I mean all these guys from the west who lecture emerging markets on the need for CB autonomy, fail to look at their own countries and their histories.

TCA Raghavan has a piece on RBI and brings its history to make his point on independence talk. He calls the central bank a fly in a bottle:


Helicopter Money: What is it?

August 5, 2015

Superb post from Fergus Cumming of BoE.


Macroprudential policy: From Emperor Tiberius to BoE’s Financial Policy Committee

July 31, 2015

Sir John Cunliffe has a nice speech on the topic.

These days most central bankers are trying to pick some incident from history to justify their interventions:


Noise over Indian central bank’s Monetary Policy Committee

July 28, 2015

One keeps wondering why is there so much noise over trivial things and nothing at all about things that actually matter. On inflation front, instead of debating about fundamental questions like whether we should have MRP (Maximum retail price), we worry over really trivial things like constitution of MPC and whether the chair of the central bank will have veto power or not.  That too seeing what little impact all this has over monetary policy. Whether the chairperson has veto power or not, his/her view usually sails through. There are hardly any cases where we have seen the chair;s views voted out by the committee.

Before, we get into the issue further, what is this whole issue about? In 2011 Budget, Indian givt set up something called Financial Sector Legislative Reforms Commission, The idea was to review and rewrite all the laws/frameworks pertaining to Indian financial sector. The idea was to modernise India’s moribund financial sector and make it jazzy like the western financial world. It was a huge effort and the committee put up the report in March 2013. Comments were sought from the public which again took about two years (why this long?). All who’s who of Indian finance (in India and abroad) were part of this process. Though, on becoming policymakers views of the same advisers changed over the report.

Now, the govt has put up a revised document after incorporating suggestions on the report. One keeps wondering who would have commented on the report? Finance and Financial laws is as elite as it can get. One seriously doubts public has any idea on what is going on. All such hifi finance is by the elite, for the elite and of the elite. But anyways, the process is much better than closed door writing and implementing of such laws.

The govt notice says:


Why Hayek first missed and then moved towards Free Banking?

July 22, 2015

Prof. Geroge Selgin has a piece on this. (Update:Joseph Salerno of Mises says Prof Selgin is partly right; this is how we figure the history of thought)

One would imagine someone like Hayek would favor free banking (banking system without a central bank running their own currencies) right from the very beginning. But no. This transition/change of views happened fairly late:


Build up of forex reserves is actually dollar colonisation

July 17, 2015

It is amazing to note how history is quickly forgotten. Leave history, even current times are ignored just to fit one’s agenda. There is a huge belief that it is high forex reserves which are the safeguard for Indian economy. The same reserve building was criticised greatly pre-2008 period as RBI should only do inflation management and not intervene in forex markets, build up of forex reserves is inflationary, forex reserves distort economy as one issues MSS bills and so on. Even currently, China has the highest forex reserves in kitty and all via its current account surplus (unlike India’s forex reserves which are mainly via short term capital flows) but is unable to keep global threats away. And then post 2008-crisis, Korea could not keep off speculatiion fears away despite pretty high forex reserves as well.

In nut shell, India is safer not because of forex reserves but just because we have kept ourselves relatively closed to world economy. And then compared to world, our macros are not as bad (it is always a relative game). However, our policymakers and media prefer to sing their own tunes.

Infact, one should actually be questioning all this forex intervention business as India had opted for inflation targeting. Earlier, the view was we need to target multiple things as in an emerging economy we cannot just stand by and let certain things like exchange rate go awry. In IT, the first thing central bank does is give up exchange rate management. The forex assets begin to be piled up at banking level and not at central banks. Central banks can instead sign up swap lines with advanced countries in case there is a shock. A swap line ends up being a much cheaper option as well.

C Shivumar has a piece on how all this forex reserve build up is not really chest thumping. It is actually the opposite – it exposes you to dollar policy:



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