"In Keynes’s solution to our global economic problems, the primary function of well organized and orderly financial markets is not to optimally allocate capital. Instead it is to provide liquidity so that holders of financial assets traded on such markets “know” he/she can make a fast exit and liquidate their portfolio position at a price close to the previous market price at any time he/she fears something bad is going to happen in the future. For business firms and households the maintenance of one’s liquid position is of prime importance if bankruptcy is to be avoided. In our world, bankruptcy is the economic equivalent to a walk to the gallows."True, but the important point now is that we are at an Eccles' moment. In other words, monetary policy is like "pushing on a string." We need fiscal policy, and to understand that deficits and debt are not a problem, they are the solution.
Wednesday, June 8, 2011
What is the correct Keynes solution
Short interview for an Argentinean radio show, in Spanish.
Fields, David (Forthcoming), “Classical Dichotomy,” Edward Elgar Encyclopedia on Central Banking , edited by L.P. Rochon et...
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