Saturday, November 10, 2012

Novel Monetary Policy Has Its Risks, But Also Its Rewards

Author: David Schwartz J.D. CPA
In an October 14, 2012 address in Tokyo, Fed Chairman Ben Bernanke outlined the Fed's near term economic outlook, and discussed in an international context the basic rationale underlying the Federal Reserve's recent policy decisions.  According to Bernanke, the outlook is for the economic recovery to proceed at a moderate pace in coming quarters, with the unemployment rate declining only gradually and inflation running less than 2%.  These expectations, however, are colored with significant downside risks including the potential for intensified strains on the economies of EU members, potentially further slowing growth.   The Federal Open Market Committee (FOMC) expects to continue  to employ some creative monetary policy to promote some easing in financial conditions, instill greater public confidence, and promote more rapid economic growth and faster job gains over coming quarters.  Bernanke stressed, however, that monetary policy is not a cure-all.  Unconventional monetary policies have risks, and the Fed has approached novel applications of monetary policies with great caution, weighing both domestic and international effects in the long term.
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Friday, June 22, 2012

Wallison on Shadow Banking: If It Isn't Broken, Don't Fix It

Author: David Schwartz J.D. CPA
In a piece published June 14, Peter J. Wallison, Fellow at the American Enterprise Institute, argues against imposing any new regulation on shadow banking markets and firms without without convincing proof they need it.  According to Wallison, the calls from regulators and others for additional regulation of so-called “shadow banks” are simply a rush to judgment.  Further, he believes that the failure of Lehman and failures and bailouts of other non-financial firms during the financial crisis are not evidence that shadow banking firms and markets are inherently unstable and need regulation.  In his view, the financial crisis was a one-of-a-kind event that overwhelmed all forms of regulation, and took both regulated banks and unregulated non-banks by surprise.  Failure under these conditions, according to Wallison, says nothing about the inherent stability of shadow banks.
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Wednesday, April 25, 2012

Bernanke: Shadow Banking Remains a "Key Vulnerability"

Author: David Schwartz J.D. CPA
In an April 13 address, Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System, made clear that he sees the system of shadow banking as a key vulnerability that makes another catastrophic economic crisis nearly inevitable.  In Bernanke's view, the increased importance of the so-called shadow banking system is the primary reason for the severity and pervasiveness of the financial crisis, and the regulatory gaps in which shadow banking activities operate must be addressed by policy makers.
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