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The global credit bubble and its bursting during the first decade of the twenty-first century set off a search for the culprits. The investigation is fundamentally historical rather than criminal. The actions and flaws of institutions and individuals are coming under scrutiny. The investigators are also turning to wider social and economic forces which in combination might have been responsible for the disaster.
A search for the causes of economic and financial breakdown has some similarity with the pursuit of the blame for the eruption of war. The analogy is only partial because investigations into the breakdown of peace can lead to indictments of war guilt. The identified person or organisation could be due for punishment (sometimes posthumously in a purely hypothetical court process) for crimes against humanity or lesser charges. Crime and punishment are not at issue in the investigation of the economic debacle.
ECB architects destroy pivot role for monetary base
A key argument for targeting high-powered money (the monetary base) is grounded on the belief that, given a firm monetary anchor (in this case a target for high-powered money growth), the market would do a better job of steering interest rates close to the ideal equilibrium path (and in discovery of the natural or neutral interest rate level – a crucial element in the auto-piloting process) than the monetary bureaucracies (central banks).
Very short-term money rates would be highly volatile as was the case under the gold standard regime. The volatility would stem from passing shortages and excesses in the market for bank reserves. The average level of these rates, though, over several weeks or months, should be fairly stable. Anyhow it is the rates for medium-term and long-term maturities which would have the greatest information content.