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Friday, June 3, 2011

Bill Black on the ECB and the Fed

Crises reveal many deficiencies and one of the most glaring was the European Central Bank (ECB). The ECB was set up, unlike the Federal Reserve, to have only one mission and one function – securing price stability through monetary policy. The Fed has three missions and three primary functions. The missions are systemic financial stability, price stability, and full employment. The functions are conducting monetary policy, serving as the lender of last resort, and acting as a financial supervisor. The crisis revealed that both dominant forms of central banking could attain their most fervent goal – near total “independence” in determining and conducting monetary policy – and fail abjectly.

The crisis revealed that the ECB’s narrow mission and function left the EU helpless to deal with a severe economic crisis. The ECB could not save Europe. Only the Fed could, and did, save Europe through currency swaps, serving as a lender of last resort (often on the basis of chimerical collateral) to major European banks, and providing liquidity backstops to myriad financial markets.
[emphasis added]


3 comments:

  1. HI Tom

    cc Mike

    Open swap lines for Europe so they can buy the EU-NYSE and so Fiat can buy Chrysler.

    What is going on ?

    Maybe creative destruction would have been OK so that middle tier banks and businesses could scavenge the zombie banks, pseudo industrials and all the other TARPies.

    Maybe austerity is good ?

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  2. Black: " The Fed has three missions and three primary functions. The missions are systemic financial stability, price stability, and full employment."

    The Law:
    The Law: "The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."

    Why does Black put "full employment" last when the law puts "maximum employment" first? For that matter, why does Black use the word "full" at all?

    I think the professor needs to go back and actually read the law instead of being brainwashed by the popular beliefs/dogmas of what the Fed is supposed to do...

    I'd like to see a citation for "systemic financial stability", I dont think this appears in law, it is a dogma.

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  3. Great articles from Black and Hudson last times, as usually.

    ReplyDelete