Showing posts with label Monetary policy. Show all posts
Showing posts with label Monetary policy. Show all posts

Sunday, September 04, 2016

Rajan Is Right

Raghuram Rajan, India's Departing Central Banker, Has a New Warning 

2008 was a wasted crisis. It was a crisis that could have helped the world take one big leap towards a knowledge economy. The world had an opportunity to shape globoeconomics, a new third dimension to the traditional micro and macroeconomics. Some new global institutions were needed. America needed a three trillion stimulus with much of that money ending on Main Street, but instead ended up with a much bigger monetary stimulus with all the money ending up on Wall Street, pretty much free.

If the interest rates stay at near zero for long enough, it is no longer a tool, is it? But what if that has been your only tool? Then you have no available tool the next time a big crisis hits.

Thursday, December 04, 2014

The Theoretical Void In Economics

English: Total Solar eclipse 1999 in France. *...
English: Total Solar eclipse 1999 in France. * Additional noise reduction performed by Diliff. Original image by Luc Viatour. Français : L'éclipse totale de soleil en 1999 faite en France. * Réduction du bruit réalisée par Diliff. Image d'origine Luc Viatour. (Photo credit: Wikipedia)
The 2008 economic meltdown came out of nowhere. Literally no one saw it coming. No economist of any renown had foreseen it. That is like having an army of astrophysicists none of whom can predict the next solar eclipse. I am not too impressed with the economists of the world. Reality is ahead of theoretical progress in the field, obviously.

And even when the crisis hit, the prescriptions were hotchpotch. They were coming from policymakers who sort of kind of knew what needed to be done. That is a sad state of affairs. I still see that theoretical void. It goes unfilled.

One prescription was the 700 billion dollar stimulus. That helped but was too small to make full use of the crisis. Another prescription was the Fed simply printing and pumping dollars into the economy. And that is intriguing to me. Simply by printing more dollar bills, the Feds were also having positive impacts on far flung countries.