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Wednesday, October 8, 2008

FRIDAY OCTOBER 10th OK, let's look at it again...

For those of you who are unaware, I have a one hour interview with Ben Bernanke in my second book (that's us on the left). We talk about the economics of the Great Depression for 60 minutes (that's all the time I had, see?). If you don't want to pop for the book it is also available free on my university web site . There is a link there that will give you the pdf file so you can read it all, if you wish. It is somewhat technical and may not be your cup of tea. I understand. So let me cut to the chase. On pp. 65-66 I have the following exchange with the Chairman (who was a Governor at the time, May 2005) :

Randall Parker: Are there any lessons from the Great Depression that need to be relearned?
Chairman Bernanke: As I said before, the two main lessons which I think have been learned to a large extent, but always can be re-emphasized, are first that a central bank’s primary responsibility is the maintenance of price stability, to provide low and stable inflation in the medium term, to avoid sharp inflations or deflations and particularly to avoid the instability of expectations associated with an unanchored price level. The second lesson is that the financial industry is a special industry in terms of its role in macroeconomic stability. Major
upheavals in the financial system can be extremely disruptive to the economy as a whole and therefore the central bank and other government institutions have a particular obligation to make sure that financial stability is preserved, that banks and other financial institutions are well capitalized and well managed and that there exists a mechanism for responding in the event of
crisis, such as the discount window or a deposit insurance system or whatever you need to make sure that the financial system will remain whole even under a great deal of stress.

That is what the man said. I am reminded that during the 50th anniversary of the founding of the State of Israel, the Knesset invited a survivor of the holocaust to come before them and tell them the one thing he has learned from his life's experiences. He told them "when someone tells you they are going to destroy you, you have to believe them!"

Read it again...."or whatever you need to make sure that the financial markets remain whole even under a great deal of stress." When Dr. Bernanke says "whatever you need" you have to believe him!


derek p said...

Does what ever you need include adjusting the require reserves?

derekp said...

What about margin requirements?

Still a lot of amo left...will reserve and margin requirements be the real big guns

Sailor's Cap said...

What no update? We are waiting?