Securitization and financialization

Securitization and financialization are the main causes of the financial crisis. These two concepts explain not only Minsky’s financial instability hypothesis but also the off-balance-sheet operations represented by erivative products, which are closely related to mortgage loans. Financial intermediaries in need of liquidity did everything in their power so that the securitization of assets could have a life of its own in financial operations. This is a process that is endogenous to the development of financialization. Because said process was a violation of the monetary economy, it was necessary for central banks to intervene as “lenders of last resort” as well as to nationalize and restructure all the financial intermediaries

Emerging Markets and the International Financial Architecture: A Blueprint for Reform

If emerging markets are to achieve their objective of joining the ranks of industrialized, developed countries, they must use their economic and political influence to support radical change in the international financial system. This working paper recommends John Maynard Keynes's "clearing union" as a blueprint for reform of the international financial architecture that could address emerging market grievances more effectively than current approaches. Keynes's proposal for the postwar international system sought to remedy some of the same problems currently facing emerging market economies. It was based on the idea that financial stability was predicated on a balance between imports and exports over time, with any divergence from balance providing automatic financing of the debit countries by the creditor countries via a global clearinghouse or settlement system for trade and payments on current account. This eliminated national currency payments for imports and exports; countries received credits or debits in a notional unit of account fixed to national currency. Since the unit of account could not be traded, bought, or sold, it would not be an international reserve currency. The credits with the clearinghouse could only be used to offset debits by buying imports, and if not used for this purpose they would eventually be extinguished; hence the burden of adjustment would be shared equally - credit generated by surpluses would have to be used to buy imports from the countries with debit balances. Emerging market economies could improve upon current schemes for regionally governed financial institutions by using this proposal as a template for the creation of regional clearing unions using a notional unit of account

Speaking to the people? Money, trust, and central bank legitimacy in the age of quantitative easing

Financial upheaval and unconventional monetary policies have made money a salient political issue. This provides a rare opportunity to study the under-appreciated role of monetary trust in the politics of central bank legitimacy which, for the first time in decades, appears fragile. While research on central bank communication with "the markets" abounds, little is known about if and how central bankers speak to "the people." A closer look at the issue immediately reveals a paradox: while a central bank's legitimacy hinges on it being perceived as acting in line with the dominant folk theory of money, this theory accords poorly with how money actually works. How central banks cope with this ambiguity depends on the monetary situation. Using the Bundesbank and the European Central Bank as examples, this paper shows that under inflationary macro-economic conditions, central bankers willingly nourished the folk-theoretical notion of money as a quantity under the direct control of the central bank. By contrast, the Bank of England’s recent refutation of the folk theory of money suggests that deflationary pressures and rapid monetary expansion have fundamentally altered the politics of monetary trust and central bank legitimacy.Die durch die Finanzkrise und die unkonventionellen Maßnahmen der Zentralbanken bewirkte Politisierung des Geldes erlaubt einen seltenen Einblick in den Zusammenhang zwischen Geldvertrauen und Zentralbanklegitimität. Die Kommunikation von Zentralbanken mit der breiten Öffentlichkeit – im Gegensatz zur gut erforschten Kommunikation mit Finanzmärkten bisher weitgehend vernachlässigt – sieht sich mit einem Dilemma konfrontiert. Einerseits hängt die Legitimität der Zentralbank davon ab, ob ihr Handeln den Maximen entspricht, die sich aus der in der Öffentlichkeit vorherrschenden Theorie des Geldes ableiten. Andererseits weicht diese Theorie in wichtigen Punkten von der tatsächlichen Funktionsweise des Geldsystems ab. Wie Zentralbanken mit diesem Dilemma umgehen, hängt von der allgemeinen geldpolitischen Situation ab. Anhand der Beispiele der Deutschen Bundesbank und der Europäischen Zentralbank wird argumentiert, dass Zentralbanker unter inflationären Bedingungen die Öffentlichkeit gerne in dem Glauben lassen, die Geldmenge sei vollständig von der Zentralbank kontrolliert. Die außergewöhnliche Initiative der Bank of England, die Öffentlichkeit von der Irrtümlichkeit dieser Vorstellung zu überzeugen, zeigt hingegen, dass deflationärer Druck und rapide geldpolitische Expansion das diskursive Verhältnis zwischen Geldvertrauen und Zentralbanklegitimität grundlegend verändert haben.1 Introduction 2 Money, trust and people Money: The political economy of money and (central) banking Trust: What does it mean to say that people have trust in money? People: Beyond methodological elitism 3 The folk theory of capitalist credit money The myth that all money is created equal (and thus non-hierarchical) The myth of banks as intermediaries and the myth of exogenous money 4 The politics of trust and legitimacy: From monetary restraint to monetary expansion Fighting inflation: The Bundesbank/ECB pretense of control over M3 Fighting deflation: The Bank of England’s insistence on non-control over M3 5 Conclusion Reference

TRUMP, TWITTER, AND TREASURIES

After appointing Federal Reserve Chairman Powell, President Trump put pressure on the Fed to cut interest rates. We show that, on average, a statement from Trump on the Fed led to lower long-term interest rates, consistent with expectations of lower expected future short rates. However, the impact of Trump's statements declined over time. (JEL E52, E43, E32