Finance

What we’re reading: A weekly scan of published items relevant to the Institute’s work

The recent growth in the scale and different forms of shadow banking and alternative finance mechanisms in China poses many questions of understanding, from its sustainability; different forms of credit growth; to the role of local government financing, and; the tensions between financial reform policy and practice.

Company law in the US and UK fails to acknowledge that authorities’ propensity to rescue giant banks from the consequences of insolvency assigns taxpayers a coerced and badly structured equity stake in too-big-to-fail institutions.

Eight years after the 2008 crisis the global economy is still stuck with low growth, too low inflation, and rising debt burdens. Massive monetary stimulus has failed to generate adequate demand, and some commentators suggest that we are “out of ammunition” with which to counter deflationary pressures.

If the government/CB together finance an increased fiscal deficit with permanent non-interest-bearing fiat money, then some private sector agents have to hold non-interest-bearing monetary base, and must continue to do so even when policy and market interest rates have moved away from the ZLB. How is this possible in an environment where most bank deposit money is potentially interest-bearing?

In the growing debate about the pros and cons of a monetary financed fiscal stimulus (a.k.a. helicopter money) it is argued by some participants that a money-financed stimulus will have no more effect than a debt financed stimulus since:

What we’re reading: A weekly scan of published items relevant to the Institute’s work

Behavioral finance views stock-market investors’ expectations as largely unrelated to fundamental factors. Relying on survey data, this paper presents econometric evidence that fundamentals are a major driver of investors’ expectations.

Author Rana Foroohar explains why the economic policies being touted by both presidential frontrunners offer none of the new thinking necessary to drive a policy response to revitalize the economy

The SPD, the Social Democratic Party of Germany, has been collapsing in the popularity polls ever since they in 2003 launched the reform Agenda. What would have come of the party if it had not been for this insane rush to reform? Possibly Gerhard Schroeder could even still be chancellor today. A case for the time machine.

Despite using different methodologies, a number of scholars agree that most of the ‘bailout’ money is going to Greece’s foreign creditors

Peter Conti Brown’s new book explores and debunks a powerful meme shaping public understanding of the role of the Fed

Any use of money-financed fiscal expansion as a policy tool will require rules to ensure discipline and avoid excess

Five lessons from the last crisis — for managing the next one

Economist James K. Galbraith warns that ‘unrealistic expectations’ by Athens’ creditors is a recipe for turmoil