Central banks

I’m attending a two day 21st annual H. Minsky Conference organized by the Levy Economics Institute.

Really good presentations and interesting discussions. I’ll try to share more detailed impressions later on (most likely in the classroom), for now though a brief remark.

One of the speakers suggested that Central Banks’ focus is primarily stability of the financial system, causing a mixed reaction in the audience.

Expectantly [as per some in the audience] one must have said boldly that central banks are their to safeguard the macro economy..not the financials…

Point taken and obviously the Fed and other CB’s do have dual mandates …

But most critically, whether we like it or not, in the current environment through their actions Central banks establish rules of engagement for the banking system firstly.

Secondly, if we recognize “endogenous money” and the fact that we are in the financial economy…Central banks inevitably assume stronger position in suporting the banking system. Yes, that means making commercial financial institutions profitable and creating opportunities for them to become more profitable…

Don’t think so?…read Bagehot¬†for early descriptions of the financial economy beginnings in the 19th century.

So in the web of banking¬†transactions¬†(hedge funds and all types of financials included) a strong Central Bank emerges as the parent in the kids’ room: with power to bring order.

After all it’s in the kids’ best interest to listen to their parents (own or adopted) even when they go on as adults in their lives…

Pardon any typos…

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