SS Mundra of RBI speaks on financial inclusion and has some interesting insights.
He says unlike the impossible trinity of macroeconomics, here there is a possible trinity of inclusion:
How times have changed. Earlier any mention of markets automatically meant it is real and good for the people. Not anymore.
Mark Carney of BoE (while releasing the Bank’s Fair and Effective Markets Review Releases Final Report) says we need to build such markets:
From the coffee houses that served as meeting places for entrepreneurs and merchants; to the exchanges that supported the trading of financial claims; to a central bank that acted as lender of last resort: a rich infrastructure developed to support markets that served the UK and the world. As it grew into the world’s leading economic and trading power, the UK also became its centre of financial capitalism.
It is really surprising to see such reflections. For all you know, BoE and London were seen as the benchmarks for anything in finance.
What are real markets?
Stan Fisher sums up the lessons he has learnt over the years.
He misses the most important lesson – know the financial history and know it really well. Infact history is not even a word in the speech. Infact, if one follows history then you are unlikely to hype certain phases of economic and stock market growth as a new dawn or something. And then as the crisis enfolds, you know what you have to do. After all, there is nothing unique about having a crisis. History keeps you humble and grounded.
Another thing is how despite likes of Prof. Fisher wanting to be seen as market promoting economists, actually just talk about government and central bank interventions. These evry interventions end up sowing the seeds of the next crisis.
Personally, I think IDFC was made into a bank a wee bit too early. Given how China and even India is pushing new development financial institutions to fund infra, we might have to soon look at domestic front too. We actually might need a few more IDFCs in future. Anyways, nothing can be done now. In finance, we have to go in circles and keep pulling out old wine in new bottle.
In this interview, IDFC chief Rajiv Lall explains how the transition is happening. Interestingly, the bank starts big from MP of all places:
Nice speech by G Padmanabhan, retiring ED of Indian central bank http://www.bis.org/review/r150410c.pdf
He handled the forex department and tells this useful story of evolution of Indian forex market. A good read..
One big lesson from the recent crisis should have been to ignore whatever econs and their inspired central banks have been telling us for some years now. Their role should have been marginalised. But the dependence on them and their wisdom has only risen.
We were told by celebrated econs that how central banks could have avoided great depression only if they eased their policy for an extended period of time. This became a wisdom of sorts and accepted at a wide scale. We could have only known the utility if this wisdom if there was another such crisis and had to wait for nearly eighty years for such an event to occur. And as the event struck, the ideas were implemented in frenzy. This was to ensure if Lords of Finance part II is written, it has just the opposite results. Alas we now know the limitations of this frenziness. It is all over the place.
In this spirit, it is interesting to read this speech by Kirsten Forbes of BoE. She invokes the lessons from King of Midas and how central banks behaved like one:
When the legendary King Midas initially received the power to turn everything he touched into gold, he deemed it highly successful; the benefits of being able to create immense wealth with simply the touch of his finger far outweighed any costs. During the financial crisis, many central banks used less glamorous tools to create base money – sharp reductions in interest rates and quantitative easing. These measures played a critically important role in helping economies stabilize and recover.
King Midas soon realized, however, that this power of wealth creation came with unexpected side effects – from making his food inedible to turning his daughter into a lifeless statue. As these costs accumulated, King Midas eventually wished to give up his “golden touch” and return to normality. Similarly, is the current UK policy of near-zero interest rates beginning to generate substantial costs? Is there a point where any costs accumulate such that they outweigh the benefits? Could near-zero interest rates become less “golden”?
And then we have a similar kind of story. What were cited as the benefits of low rates have become limitations as well.
But the Ms. Forbes story is incomplete. It is actually the case that central bankers behave like King Midas most of the time. They wash their hands but then quickly forget the lessons and become the king again. Whether rates are low or high, they try and behave like King Midas. The whole idea is to show that there is some magic to their actions and things will indeed turn into gold. They have a huge audience in the name of market players and media which keeps wishing for the magic. The monetary policies have become a huge magic show of kinds in the process.
In reality central banks are like those tailors which designed clothes for the king with economy being the king. Only to realise the king had no clothes really. If the illusion works, they are called as magicians and all kinds of awards are honored. As reality sicks in, the yesteryear heroes are discarded and new ones created. The game of illusion goes on.
As academicians, they keep warning us over the monetary illusion but there is a huge demand for being an illusionist. The aura and power of being the king is too tempting for anyone to ignore.
So the game shall continue…
This is as good as it gets. A really useful audio interview of Mark Thornton on the school which remains ignored in economic teaching.
Right at the beginning Dr. Thornton points how the school teachings were missed in all his economic courses. Then there is a great discussion on how Fischer remains relevant to policymakers but not Mises. He calls central banks as legal counterfeiters of currency which is an interesting oxymoron of sorts.
In this informative interview, Mark Thornton details how Carl Menger started the Austrian school of economics, and the possible Greek and Roman philosophical roots the school observes. Dr. Thornton and host Frank Conway also discuss the important limitations to Austrian economic thinking, how von Mises’ papers got in the hands of Nazi Germany and then the Soviets, and the different economic perspectives and predictions of Ludwig von Mises and Irving Fischer.
Superb interview of Prof Peter Boettke of GMU.
One major loss of the economic teaching is this school is hardly taught. At best someone is going to mention it randomly or some book will have a box briefing about the school. It is a pity that with economists talking so much about free markets , do not give much space to the school which is freest of them all.
But then as Prof Boettke says, the school is finding a resurgence in popularity given massive failures of the current economic thinking. I mean it is not about figuring who is right and who is wrong. Students have to first know what the ideas of various schools are before they can decide the right and wrong.
This is an unusual speech but seeing how banking is shaping up could be the most usual thing to talk about. In things like banking union, one would usually see things like banks’ capital requirements, quality of assets and so on.
Dr Joachim Nagel, of the Bundesbank talks on IT requirements of banks post the banking union:
Management of currency notes is one of the least focused tasks of monetary management. The origin of central banks largely came from this activity. There were many banks which issued their own notes convertible into some commodity (mainly gold). Some of these banks over-issued these notes, leading to problems of liability management. The governments then decided to have one bank issue notes which eventually came to be known as central bank. Then gradually, these banks were given additional tasks. Earlier, the banks had both deposits and currency as liabilities. But with central banks coming in picture, the currency became liabilityty of the central bank and deposits of banks.
Mr François Groepe of the South African Reserve Bank has comments on this currency management business:
Nice speech by Mr, Norman Chan of HKMA.
He says there is no reason why HK should decline as mainland China opens up. Both have their own strengths. He shows through statistics how things between the two regions have only improved overtime.
By leveraging on each other’s strengths bot can gain: