A world in economic crisis

Limiting What Central Banks Do – Room for Debate – NYTimes.com

Posted in USA by Aussie on November 13, 2010

Limiting What Central Banks Do – Room for Debate – NYTimes.com

Professor Russell Roberts responds to the comments made by Robert Zoellick regarding his suggestion that there be some kind of return to a gold standard.  Zoellick’s remarks are understandable in the current economic climate, especially when there is a probable trade war looming (thanks for nothing Barry).

The points raised by Professor Roberts are:

  • how should central banks be constrained.
  • the Gold Standard itself is a flawed system that imposed burdens upon the world’s economies during the Great Depression; this in turn either caused or exacerbated the downturn.
  • the current system is just as flawed as the Gold Standard.

What is the best system? A return to the Gold Standard would be a very backward step, and I believe it is one that should be avoided. However, a system that seems to be unconstrained is as bad as the system of constraints under the Gold Standard. The alternative needs to be a system where business is allowed to prosper without too many government constraints, and yet there needs to be some constraints when it comes to the activities of a Federal Reserve.

Based upon my Australian experience of the Reserve Bank, I would offer the way in which it has to operate as an alternative.  Australia was not as deeply affected by the Global Financial Crisis as elsewhere and I think that there are some very good reasons for this situation:

  • banks do not give mortgage loans to families who do not have the ability to re-pay the loan;
  • Statutory Reserve Deposits
  • the RBA meets once a month and looks at the economic data. If it looks like inflation is heating up they attempt to apply the brake by raising interest rates (curses upon their decisions!!)
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11 Responses

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  1. Carlyle said, on November 16, 2010 at 8:47 am

    This explains everything. I couldn’t have said it better myself:

    • Aussie said, on November 17, 2010 at 8:05 pm

      It is an interesting video, but it is one that I found to be quite boring. It is useful for people who do not understand what Bernanke has done.

      • Carlyle said, on November 19, 2010 at 3:36 am

        Sorry to bore you. Of course it is “old news” to people who know what is going on. But I thought it was a good nutshell, and amusing, and appropriately focused and pointed!

      • Aussie said, on November 19, 2010 at 6:31 am

        that is not what I meant about being boring. I just found the video itself to be boring. I did not mean to offend….

  2. Carlyle said, on November 17, 2010 at 3:24 am

    Check this out:


    also – the big problem with returning to a Gold Standard in the US:

    We don’t have enough gold! – or perhaps better stated – WE HAVE PRINTED WAY TOO MUCH MONEY. In order for a gold standard to work, there needs to be a strictly enforced USD amount tied to each ounce of gold. And at least for some sorts of transactions, there needs to be the ability to redeem the USDs in gold. Any possible parity would be obscenely bizarre! Or we could just use an obscenely small “fractional reserve”. Which, in turn, essentially negates the purpose of being on a Gold Standard.

    Methinks we have “rung the bell” and it’s going to be impossible to “unring”.

    The only possible way forward would involve torturous Austerity Measures – along with SIGNIFICANT deflation over many years. Then maybe we could talk about tying the USD to Gold.

  3. sundancecracker said, on November 17, 2010 at 5:30 am

    Just stopped by to visit your site. Best Wishes.


    ps. Clueless to what is going on but HB is in a strange downward spiral. With few exceptions (like you) the ‘best’ commentators have left the site. The tone is confrontational, abrupt, and bitter now. The primary articles are filled with “I” examples of brousque anger. Something is weird…. just not right…. Chrissy H, and Angelisms even quit there. Anyway I read a bunch if stuff here and it is very informative. Thank you. All the best, SC

    • Aussie said, on November 17, 2010 at 8:20 pm

      Sundance, I think that Chrissy is still on vacation with her family. She has been away for more than a month. I am not sure what Angelisms is doing at the present time.

      Actually, the posts over the last few days have been really good over at HB. There has been plenty of snark, and lots of funny comments, ideas on how to respond to the TSA groping our private parts. This is also a serious matter with regard to international tourism. I have a friend who went to the USA a year before we did, and she told me today that they ended up being selected for the x-ray machine. She found that experience to be demeaning. She vowed “never again”. How many more will feel the same way? Do these people ever think about the consequences of their decisions.

  4. Aussie said, on November 17, 2010 at 8:06 pm

    I do not agree with those who keep pushing a return to the Gold Standard. It is an unworkable option.

    • Carlyle said, on November 19, 2010 at 3:38 am

      I agree it is very problematic. But “what you gonna do”? Humans have proved inadequate (specifically too stupid and too corruptible) to manage things. WHO would YOU trust?

      So some sort of mechanical agnostic stability is needed. If not gold, then what?

  5. Aussie said, on November 18, 2010 at 5:43 pm

    Thanks Sundance. Of the ones you have mentioned, most of them are still reading and commenting.

    I do not understand what happened with Chrissy or even Angelisms. Perhaps it had something to do with the building of the new site. Kevin hinted that it went awry and he has been let down.

    EZBurns is using a different name. She is still there. SSmith has been commenting as well. Actually it is Bev who drives me nuts, and she is the one who seems to be driving people away.

    • Aussie said, on November 19, 2010 at 6:38 am

      Sundance, this should be a private post. For that reason I will copy and paste it, and then delete it form public view.

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