Freigeld

Given the current stance of monetary policy, further decreases in interest rates are limited. In response, Greg Mankiw in his recent post seems to make a case für Silvio Gesell's old idea of Freigeld.

Economics in One Easy Lesson

This is a short piece from slope of hope, a financial markets blog focused on "technical analysis". It begins like this:

Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. more...

EZB - Stand halten!

Wie schon in einem früheren Beitrag (und noch früher) dieses Blogs angedeutet, gibt es gute Gründe gegen eine Geldpolitik, die auf eine Senkung des Zinses am Interbankengeldmarkt auf Null Prozent abzielt. Leider scheinen diese Überlegungen in der Öffentlichkeit und in der Politik auf keinen fruchtbaren Boden zu fallen.

Nachtrag (15.03.2009)
Wenigstens nicht so in der EZB: Lorenzo Bini Smaghi, Mitglied des EZB Rats, sagte

[...] An excessively low level of interest rates may also have some unintended consequences in financial markets. It might drive some financial intermediaries out of business, for example money market funds having small, but strictly positive investment fixed costs and not anymore in the position to offer positive net returns to risk averse investors, thus risking large redemptions.

Buy American

The FT reports that the Buy American strategy of the U.S. government has hit financial institutions in a strange way:

Bank of America has become the first US bank to withdraw job offers made to MBA students graduating from US business schools this summer, citing conditions laid out in its bail-out deal as the reason.

The recently passed $787bn stimulus bill in effect prevents financial institutions that have received money from the government’s troubled asset relief programme from applying for H1-B visas for highly skilled immigrants if they have recently made US workers redundant.

Where is this road taking us...?

Bounded rationality

Robert Shiller (writing in the Financial Times) identifies the failure to control the animal spirits of financial markets as the key cause of the financial crisis. The Economist's Economics A-Z calls animal spirits the "colourful name that Keynes gave to one of the essential ingredients of economic prosperity: ... 'naive optimism'." In modern economics such behavior is often referred to as boundedly rational. Here is Robert Shiller's explanation of the problem:

Classical theory also tells us that financial markets will also be stable. People will only make trades that they consider to benefit themselves. When entering financial markets – buying stocks or bonds or taking out a mortgage or even very complex securities – they will do due diligence in seeing that what they are buying is worth what they or paying, or what they are selling.

What this theory neglects is that there are times when people are too trusting. And it also fails to take into account that if it can do so profitably, capitalism will produce not only what people really want, but also what they think they want. It can produce the medicine people want to cure their ills. That is what people really want. But if it can do so profitably, it will also produce what people mistakenly want.

It will produce snake oil. Not only that: it may also produce the want for the snake oil itself. That is a downside to capitalism. Standard economic theory failed to take into account that buyers and sellers of assets might not be taking due diligence, and the marketplace was not selling them insurance against risk in the complex securities that they were buying, but was, instead, selling them the financial equivalent of snake oil. more...

In other words: actors in financial markets are only boundedly rational and thus government has the duty to prevent - through appropriate regulation - that they take decisions that could be harmful for themselves, for others and for the market economy as a whole. In brief:

It is the role of the government ... to regulate asset markets so that people are not falsely lured into buying snake-oil assets. more...

See also Robert Shiller's and George Akerlof's new book on Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism.

Key Issues for the G20

The Centre for Economic Policy Research (CEPR) in London has published a report for the upcoming G20 meeting. It is called "Macroeconomic Stability and Financial Regulation: Key Issues for the G20" and contains contributions by different authors. Among the proposals made are an insurance scheme for countries with strong reserve accumulation and domestic expansion of the economy, an adjustment of the Basel II capital requirements to mitigate procyclicality, a centralized CCP for CDS trades, a requirement to have rating agencies paid by investors rather than issuers, the establishment of a harmonized special bankruptcy regime for banks and the creation of an international financial stability fund. Almost all of this has been heard before. However, the report may be an important indication for the content of the measures the G20 might adopt. Are we witnessing the emergence of a consensus?

China: Record Budget Deficit

DPA reports: China sets record budget deficit as economic crisis bites. (Found in EarthTimes) By US or European standards even this record deficit is small (less than 3 % of GDP). But its increase raises questions with respect to the financing of the US budget deficit, which will also attain record levels. During recent years the US has relied on Chinese savings to finance its twin deficits. But what if China will now need more of its savings at home to finance its own deficit?

The US Deficit in Global Perspective

The Big Picture, a well-known economics blog, provides an interesting glimpse of the US budget deficit in global perspective. Question: What do the GDP of Spain, of Brazil, of India, Australia, Switzerland etc. have in common? Answer: Each of them is smaller than the US deficit.

Conclusion (from the blog):

If the government fails in securing funding, a very high probability of systemic collapse.

Geldpolitik in Zimbabwe

Über die globale Finanzkrise droht eines der größten Dramen der
Gegenwart in Vergessenheit zu geraten. In Zimbabwe hat die Inflationsrate dreistellige Millionenbeträge erreicht. Damit verbunden sind Hunger, Cholera und Verfolgung Oppositioneller.

Eine Gruppe mutiger Menschen im Land diskutiert eine Ordnung nach der Regierung Mugabe. Denn eine weigehende Reform unter Mugabe ist kaum denkbar, trotz der Beteiligung der MDC an der Regierung. Dies mag aber anders sein, wenn es um die Geldpolitik geht, denn auch die Regierung zieht keinen Nutzen mehr aus der Inflation. So ist die Währungspolitik ein Gegenstand dieser Diskussion; sogar von außen gibt es Beiträge. Steven Hanke hat zum Beispiel vorgeschlagen, einen Currency Board zu errichten. In einem kurzen Beitrag im Standard (Zimbabwe), Business Day (Südafrika) und VoxEU (http://voxeu.org/index.php?q=node/3153) diskutieren Peter Draper und ich diesen Vorschlag und vergleichen ihn mit Alternativen, nämlich der Übernahme des Rand als Währung in Zimbabwe sowie einer Anbindung des Zim Dollars an den Rand.

Die Currency Board Lösung kann als unrealistisch gelten, da die nötigen Währungsreserven fehlen. "Randisierung", wie von Südafrikas Präsident Motlanthe vorgeschlagen, ist glaubwürdeig, aber politisch nicht attraktiv, so dass wir die Wechslekursfixierung für die gangbarste Lösung halten, aber die "Randisierung" präferieren. Auf jeden Fall muss bald etwas geschehen, damit die Märkte in Zimbabwe wieder funktionieren können.