Thinking ahead of the next big Crash
AbstractThe real estate bubble which burst in 2008 in the USA was not exclusively the result of “animal spirits”, “crowed madness” or “irrational exuberance”. It resulted primarily because of the specific policies that the government, the Federal Reserve Board, and the regulators pursued. Actually, on account of these policies, the surprise is not what happened. The surprise would have been if it had not happened. The reason for this assessment is that such central bank notions as “commitment” and “credibility” are pious pronouncements that do not amount to much when the push by organised interest groups comes to shove by politicians. In the face of this development, the urgent question is how to forestall the Federal Reserve Board from creating or coalescing to the creation of the next asset bubble, the crash of which may bring down the international monetary system. According to this paper, the solutions range from introducing an extended list of far-reaching institutional reforms to the monetary system in place, to upgrading the constitutional status of the Federal Reserve Board by transforming it into a fourth power of government, much like the judicial, to replacing it by a market based system of money provision and circulation. Which of these solutions is appropriate depends crucially on whether the Federal Reserve Board has control or not of either the money supply or the policy interest rate. But what is utterly inappropriate is not to do anything and wait until the next big crash.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 51486.
Date of creation: 15 Nov 2013
Date of revision:
Asset bubbles; monetary policy; monetary rules; central bank credibility; central bank constitutional status; free money;
Find related papers by JEL classification:
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-29 (All new papers)
- NEP-CBA-2013-11-29 (Central Banking)
- NEP-MAC-2013-11-29 (Macroeconomics)
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