The most well-known of the movies on the 2008 financial crisis is also the weakest. On the other hand, there are two wonderful films about it that deal with both the difficult times for traders and the underlying causes.
The promise of the central bankers to act as the caretaker of the nation’s money is a great illusion. Even more preposterous is the claim of the central bankers that they could keep the economy on the path of a low-inflation economic growth path.
The knowledge required to maintain monetary equilibrium is tacit and dispersed. No centralized monetary system, no matter how smart or well-intentioned its leaders, has access to that knowledge.
The Fed must abandon its traditional policy lever — open-market operations — in favor of managing the interest it pays on reserves if it is to hit its FFR target while operating in a floor system.
The Fed has a lot of policy tools, to be sure. But, traditionally — that is, when the Fed was operating in a corridor system — it exerted influence on the FFR primarily through its open-market operations.
Hayek’s commodity reserve standard would automatically serve to stabilize prices and output. In our discussion of rule-based monetary policy and sound money, the mechanics and principles guiding Hayek’s proposal deserve careful consideration.
In August, it will be 10 years since the Federal Reserve balance sheet exploded in size. How does it look now?
The idea that a central bank might be constrained by rules is problematic. It merely moves the central bank's choices to the more abstract level of selecting and interpreting rules.