An even earlier example of the Bank of England's assumption of lender-of-last-resort responsibility can be found in the Panic of 1890.

Posted June 10, 2011 at 4:34 AM

Gamesmith94134: Outraged European Citizens

I think the European citizens should reclaim their monetarily sovereignty and political sovereignty as well because they realize the unison of economical force might deteriorated the infrastructure of the governments after they merged to the monetarist formula in creation of the Euro-dollar that ruled the markets. It is annoying that the recent restructure of the debts demands austerity program and privatization on the political infrastructural and assets, many European citizens question the worthiness of the euro and the invasion on sovereignty especially on the socialistic societies since many saw nepotism and is out of control; Subsequently, it ignited the debate on the present European Union’s Keynesian liberalism has violated the rights of the citizens who favor socialism; and whether euro has overridden itself which is beyond economics and the proposed austerity and privatization programs has challenged politically for those are on the losing side of the equation. The populace discharged the politicians who supported the programs because they realized the multiplier effect and the accelerator effect have token them for a ride. They are outraged.

Based on the recent fiasco of sovereignty debts in PIIGS, it has tilted the balance of the equality and autonomy that created the civil war within the European Union. After the series of defaults on the loans, austerity programs many applied did not concur with IMFor Moody who gave negative result in matching the demands; treatment on higher interest payments added on the loans for PIIGS after the rating and privatization program was advised and enforced that put its citizen hostages. Now, it is questionable on the economic reform challenge could be the end of the political sovereignty of the PIIGS; and the equality and unison on partnership of the European could vary under its equation. Seriously, I do not think it is appropriate to put the PIIGS in further jeopardy in using Euros and the way IMF made it stronger even after the fact of the default. The stronger the Euro the worse it would be for PIIGS whose income largely comes from tourism and inflation hit them harder. Will the EU subject to change its currency value from 1.4 to 1 in even dollar exchange in maintenance of the 3% inflation? Anyway, I think it is time to seek other alternative instead of persisting the Euro as their currencies.

.I would suggest the zoning on prevention on the hot cash and tax evasion that each zone will have substantiate the standardized exchanges that each must carry its own bonding if necessary and fee on the transcontinental exchanges. Under the shadow of the Lehman Brothers and the failing equity bonds under the appearance and insurance of the Central banks, it needs a guarantor and an arbitrator from the World Bank and a valuator on the exchange like IMF.

Perhaps, bonds that carries over the intercontinental transaction should be scrutinized and settled through the third party medium like World Bank if such transaction is see as part of the sovereignty debts or loan since some may surpass the regular board of securities exchanges of the local central banks; or such transaction would be considered as the laundry like elements that requires policing. In the past history, many bankers would knowingly use the error of filling the defected or devalued bonds to guarantee it loans or investments because it is profitable on errors that are not checked or realized by the receiving parties. So, the bearer of the currency or citizens should not be held responsible for the error or corruption or suffer on to the vacuum on the outflow or loss of value of its currency; whether or not such transaction would be considered as graft or not.

The division of arbitrator of World Bank should have taken an advanced procedure safeguard of economical crashes if such lesser of long term investment and creates vacuum by the outflow. Such transaction should use the World Bank to guarantee these transactions are genuine investment instead of laundering purpose or act of trade war that harms the exchange currency nations or parties. Again, these transactions must pay by reserves on the value it acclaimed, or a checkpoint must be established on the transcontinental purposes instead of the later court action in disputing the rightful bearer of the devalued bonds or loans. World Bank must develop it insurance element and the appraisal power to adjust to the need of the abused including sovereignties debts if World Bank may act in the loaner position that after the central bank failed. It must establish the reserves on the funds in handling the transaction and not by the insurance company or appraisal firm that either failed to see the loophole of the fraud or defiant act on the truth in just collecting fees to pass on like kicking the can down the road like PIIIGS, eventually, it may comes as part of the function amending the global economy that World Bank will offer the loans through the reserves it may developed from the guarantee commission or appraisal commission.

In term of losing track of the transaction that goes through the protective elements, many use the political power through the governments, many of these transactions concealed national secrecy that would not be taxed or revealed by the bankers or receiving parties. So, in order to set a proper track record of these transactions, they should be regulated under IMF or the board of intercontinental exchange which is identified by its Zone. So, the transcontinental transaction must come in the checkpoints or IMF, a fee of authorization would use as tax or tariff that comes through each checkpoint and reported to the involved parties to reestablish the sovereignties right to tariff and tax. On the other hand, it can stop the laundering funds being unchecked by using the bouncing off banks in switching its identify that subjected to be taxed. As the fee of authorization funding can be used in pursuit of the unlawful element and supportive to the judiciary function to the world.

In week of study of the present global economics, I do not see the EU could have an upper hand in dissolving the loans or the bonds problem, the offering of the World Bank and IMF to boarder service can be a helpful way to ease the tension from dragging on to the global recession if there is no better alternative for the change of guard of the world economics. If our present system is outwitted by the bankers who were supported by its government to lie and understatement on the policies in their currencies war or fool every ones else while you can; we do need another system that guarantee the value and stop the further abuses. Now, it is the calls of World Bank and IMF to take the stand to work within the sovereignties that carry its own currencies and controls all transactions in the fairer trade within its continents while free trade had reaches the epic of manipulation.

Perhaps, the theory in the half full and half empty may put in use of the price and value of the currencies refreshing the preset EU system that each may return to its own sovereignty that gives the flexibility and elasticity on the monetary and political system to sustain the growth in a multispeed world.
The Downside of Integrating Markets,Michael Spence,the author of The Next Convergence: The Future of Economic Growth in a Multispeed World [1]. He received the Nobel Prize in Economics in 2001. His Web site is http://www.thenextconvergence.com [2].
In term of currencies, I think after each sustains its sovereignty, the non tradable sector can use the local currencies which can be supervise under the scrutiny of OCED and EU can control itself under the ruling of the World Bank. However, each may join or utilize the EU Euro, British pound, and Russian Rubles in the tradable sectors can achieve the collective bargain in the open trade markets. Perhaps, my suggestion could cut monopoly or abuse from diversification of limited currencies in the open trading market and each can contribution to the integration of globalization and being monitored by the global security. I do not think there will be a perfect solution to our present problem, but if everyone is putting his or her faith in other. The world would come as one easier.
If bankers are not caught or jump off buildings, bonuses on failure is a joke as in a curse to our failure on intelligent. It is all ease money, World Bank and IMF. Lay down your card, and deal.

May the Buddha bless you?

Because Trichet was determined that national governments should take responsibility for their fiscal doings. He wanted to avoid saying to the countries that the ECB would save them if they acted irresponsibly. He was right. Countries have to take responsibility. They are democractically elected to act responsibly in the best interest of their people. The ECB is not a democratic institution and needs to make sure it is not used by politicians as a convenient fool. That some countries such as Greece and Italy are failing to act responsibly is the issue. That governance does not allow for them to be brought into line by the other countries (not by the ECB) is the issue. That will have to be changed.

This is just brilliant.  Many thanks for it.  Could not agree more but could not have said it so eloquently.

Professor Panicos O. Demetriades

University of Leicester

http://www.le.ac.uk/ec/staff/pd28.html

A central financial authority that preserves trust that contracts will be fulfilled and promises kept?  Sounds good ... but one hopes the Europeans are a little smarter than Geithner and Bernake.  In the US the contracts that were fulfilled, i.e., paid or enforced, were these: Bonus payouts to bankers; AIG credit default swaps in favor of Goldman-Sachs; Mortgage debt owed by ordinary people.  Ah, yes -- don't forget Fannie and Freddie - still supported by taxpayers, even though the promise of support had never been made.

"The Bank of England’s charter did not give it the legal authority to undertake such lender-of-last-resort financial-stability operations. But the Bank undertook them anyway."

Which contradicts rule of law which is essential.

The ECB continues to believe that financial stability is not part of its core business. As its outgoing president, Jean-Claude Trichet, put it, the ECB has “only one needle on [its] compass, and that is inflation.”

The opposite of "financial stability" is "inflation".

gamesmith94134: the Instability of Inequality

 There are two points at any dimension, where it starts and ends. if it focus at one point only; it became the dote. So, liquidity or Solvency is the Bank of Land is looking at now; and anemic as it grows.

“Any economic model that does not properly address inequality will eventually face a crisis of legitimacy.” Each economic model failed respectively on the macroeconomical system since the scale of supply and demand  have been altered by the regulations or manipulation after the globalization. Macroeconomic and microeconomic had took a cakewalk whenever the competition appears, because each applications have a contradiction as shifts in the scale from the market and state; as just as you descripted in, “The increase in private- and public-sector leverage and the related asset and credit bubbles are partly the result of inequality.

Perhaps, you may mixed with the atmospherical force on an explosion and implosion of a balloon that microeconomical strategies became irrelevence that supply and demand is not react to each other like America. When it met its macroecomonics in the price strucrtures, The emerging market nations created another price structure that made the baloon collapsed under the pressure of competition and its market shrinks by its agregated demand even after the quantitive easing I & II.  First, Mediocre income growth for everyone but the rich in the last few decades opened a gap between incomes and spending aspirations. It concurs with a lack of economic dynamism that led to sclerotic growth then and the eurozone’s sovereign-debt crisis now. Secondly, price structure collapsed,and deflationary to adjust became the catalyst to its implosion since America or the  Anglo-Saxon countries, the response was to democratize credit that were not fully financed by taxes, fueling public deficits and debt. In both cases, debt levels eventually became unsustainable.

In the part of China or India, low currency exchange rate and low labor cost may not made the best of the product available in its contest of quality; but the aggregated demand from China, India and US combined make the conbustion on price that inflation is changing the status of the currency exchange rate and labor cost to rise. In addition, the high rise of price creates hardship for those are below the rising living standard since they live on salary; and, which polarized the rich and the poor more. With the pressure of the macroecomonic on surplus and workforce, it must face the inequality of the middle class is driving the inflation to eyelevel of its governments. So, more price control and more regulation is put in the situation to halt its price system to synchonize with the developed nations. Its price structrure exploded its price limits after the demoncratize credits is put into contest with its economical developments. Besides, the aggregated demand rose significantly above the level of supply. Then, living standard elevates that created the short fall for the poor.

In turn of atmospheric pressures in the free market system, we complete with state and private development. When the soveriegnty confronts each other, it is how the O2 turn O3. It became the sunscreen even the sun ray is not coming through----it is just a mere reflection and it is how stable we are now. At present, rule and regulations are kites floating in the sky and it became instability even for economists. Many cannot take their breath in O3. When economists juggle how much rubber is in the balloon is required to the skin of the balloon; they confused themselves when it blast or collapse. Since the globalization is an application of a chain reaction of balloons that interact to each reaction in the macroecomonic model.  As the power of the middle class in micro economic model, if you attempt to restore, you must know which side of the rubber you are taking; ”Burgernomics” is the closest crisis I know of its legitimacy; it is the common dinominator on how the Macdonald hamburger is sold and consume in continents. Relativity is the rubber to the balloon that both micoeconomics and macroeconomics apply  and interact in the creation of its chain reaction on competition in the sense of globalization.  More O3?

May the Buddha bless you?

Professor DeLong makes some good points, but one thing he fails to do is differentiate between a central bank serving as a 'Lender of last resort' to the banking system versus serving as the 'Lender of last resort' to sovereign countries.

So far as I know the ECB has continued to serve as the former but has resisted becoming the latter. And the reason for this is Europe's very real and not so distant memories of Europe's destructive hyperinflation.

However, I suspect that if things get extremely ugly the ECB will print a much greater quanity of money than it has to date to bail out Europe's sovereign countries.

Agreed with @polycapitalist on the fear of hyperinflation.

Bu both this fear and the unwillingness to allow ECB action to go beyond controlling inflation (not the same thing as ensuring financial stability, though overlapping) is critically German.

Not only did hyperinflation occur solely in Germany, the restriction of central banking activity to inflation control is a typical feature of German politics. Likewise, the assumption that a legal conduit can be shut for market confidence purposes but reopen in case national interest is summoned by self conscious individuals in charge is typically anglo saxon.

Hence the issue of coordinating ECB activities is hardly a debate on means to use, but on how these means (here government bond purchase) should be regulated - and upstream of this, how they are perceived by the main state protagonists.

Mr Bradford Delong is here taking a very American, pragmatic stance, and as many US analysts, fails to understand the issue at hand. It's not about being pragmatic, it's about generating consensus between different and often contradictory political cultures within a continent now economically joined at the hip. 

Yes, I know, it's complicated. If it were not we'd probably have sorted it by now.

The more the central banks, the greater the financial crises. Ever since central banks have become ubiquitous, there have been series and series of asset bubbles, boom and bust, and more bail-outs. The answer is clear-we encourage moral hazard.

So what's the solution? Return to free banking where each bank must defend for itself, ensuring that it is sufficiently capitalized, and restraining from excessive lending. Yes, each bank would issue its own notes and coins with backing of say gold, silver, or other entrusted commodities. Hence, they will be many banknotes competing each other for users.

Well, to put it simply, we need a free market in the banking sector. Survival to the fittest!

Quah, Chee Heong

Gamesmith94134: Striking Euro Gold (and Silver) 11032011

“Milton Friedman’s bimetallic standard inherently more stable than a monometallic (gold-based) regime.”

When you recieve two bids of Euros, in from Germany and the other from Greece; you would take the bid from Germany over Greece. Would you discount the euros of Greece with 15% just for sake of the confidence vote? Why should you discriminate one over the other as in Euros? It was the deficiency of credit that Greece may bear or the contagion as you may believe. If it is the investment consisted of US dollar and Euro in the open market trading, you would have no choice on the bids. Reluctently, you may have to accept the higher bid, even though you realized that you are under the attack by a raider or hedge fund manager. Suddenly, you may lost your company with the lesser of 51% of the control of it.

It is how hedge fund managers or raiders use monetarism to undermine the weaker ones with weak currencies even for sovereignty nations; since the open market system does not provide a gatekeeper to stop the manipulation. Since the investments from aboard may not create growth or productivity if there is not sufficient time to grow in completion of the business cycle or create productivity on the invested with no innovation or products. It is merely exchange of hands for such transaction. It is  how the sovereignty debts are created under the influence of the activity of hedging with the cost of living rises; and loss of credit as the pooling of its fund weakens. Therefore, it is advisable to revive the bimetallic standard to create the gatekeeper on the handicaps of the domestic currencies and international currencies; whenever investments are made by the foreign communities or sovereignty debts.

If the bussiness transaction happens in a community only like London, people buy, people sell within a single circuitry of currency that share the same standard of credits, commodities and culture; such transaction do not affect the value of the its currency or increase on productivity. If a foreign investment is involved; the  circuitry expands or contracts for its excesses or shortages in the pooling of its currencies, or commodities. Subsequently, it would create a shortfall or surge in value of the exchange that is not a bottomline to the business cycle or productivity.

When there is a 3% interest credit charge on the market, I would gain 2% with my 1% interest credit charge even I have my US dollars exchanged to British Pounds, since there is no handicaps on the exchange. It is why many complain on the fiat money and the liquidity traps when the foreign investments are often being manipulated the currency rate changes for a stronger currency to weaken its own that caused inflation of the weaker currency; or withdrew at great mass that cause the shortage of cashflow or credit.

In term of redistribution of wealth, the middle class of earnings did not match the growth after inflation; because the investment was dislocated while business cycle was not completed; or the productivity was not sufficient for a pay raise in matching the profit growth. Perhaps, we can blame on the competitions, but there is no comparison if there is no foreign investment or import of goods; and if it were a enclosed environment that no export is made. But, if we are taking advanage of the foreign investment or imported goods or resources to create productivities, sovereignty nations must restore the soveignty currencies to safeguard its citizenry from the invasion of currencies or resources that creates hardship for its people and allot resources for the exchange of goods and services from the foreigners. Then, the citizen must not pay for what the banker did; and stop telling me to pay tax my million dollar house that I did not earn. Parhaps, the line is drawn that the politicians must realize they must pay their bills too; instead of raisng our tax fo thier mishaps.

As we learn from the recent soveriegnty debt crisis an financial disaster, we are clear at principle of the fiscal and monetary system must sustain both of balance and growth. Free Trade must free of mainpulation of the resources or invasion of others by using currencies or political powers; and each sovereignty nations are entitled to feed its people with domestic currency and trade it goods with the common currency availbale to obtain a better bargain for imported or exported. In addition, I prefer Zones in continents in protection of the weaker sovereignty nations with its neighbors nations to fend off the unwelcomed transaction that would be considered as hostile; because some investments are not solely privatized as it claimed; and free trade must be invited and not broken in or out at free will. If we all play the same rule, the world would be better for the citizens and governments too.

May the Buddha bless you?

Gamesmith94134: Two tiers, too complex

Perhaps, I am looking forward to an alternative in leaving the Euro-Dollar regime,and by the time limit making the total monetary sovereignty nations of the PIIGS or separating the North an South of the European Union; if the dual currencies in operation is feasible in taking over the present system without erupting the EFSF or the ECBs.

The question I really want to know how much does Ms. Merkel intend to buy off those 50% off Greek bonds, or the Italiian bonds, instead of acquiring China to bring down the Sovereignty debts of the PIIGS? If it is indefinite, then I hope the dual currencies system can at least probe on an insulation on the citizens of the PIIGS and the world. Seriously, I think it is the least the G20 can do now in setting up the Zones for the coming financial disaster of CDS or CDO; or even the failure of the bankings with the lowest interest rate for the continuing anemic growth of the world.

With the best wishes to G20 and the PIIGS.

May the Buddha bless you?