Comments on: Cautionary Tales: Central Bank Liquidity Injections Made Crises Worse in Latin America

By: Anonymous

Anonymous — Mon, 05 Jan 2009 03:00:00 +0000

Happy days are here again. Yves, thanks for posting link to the “Some Assembly Required” blog again. This time, I’ve book- marked. Insightful humor seems to be an important evolutionary device by which we humans can maintain hope that ethical reasoning may yet prevail.

By: Anonymous

Anonymous — Mon, 05 Jan 2009 01:40:00 +0000

The article is intellectually dishonest. The crisis in Latin America is caused by a sudden catastrophic devaluation of the local currency. Draw the chart again in US dollars and you’ll see the real picture.

By: Ranger Turtle

Ranger Turtle — Sun, 04 Jan 2009 22:34:00 +0000

The Chinese and Japanese have slowed down their purchase of Treasuries, so the Fed is now BUYING T-Bills from the U.S. Treasury. i.e. We are buying our own debt, with fiat Fed money.

Its time to be very afraid.

By: john bougearel

john bougearel — Sun, 04 Jan 2009 05:50:00 +0000

a great prescription to follow for the next credit creation bubble.

By: Anonymous

Anonymous — Sun, 04 Jan 2009 01:55:00 +0000

wintermute,

Yeah I recall that one of the bill of particulars against North Korea was the counterfeiting. The question now though, since US banks will apparently not lend, is why shouldn't North Korea, Ecuador, Russia or whoever be encouraged to counterfeit dollars on a massive scale. It would certainly would be good for US exports. Didn't the FED rather recently engage in multi billions (or was it multi trillions) of currency swaps with the ECB. Wasn't that an inducement to counterfeiting by foreign banks?

Anon at 2:13

By: Juan

Juan — Sun, 04 Jan 2009 00:25:00 +0000

Injecting large amounts of central bank money to cope with banking crises has been a regular practice in Latin America, except in a handful of episodes. The intensive use of central bank money was mainly the result of inappropriate legislation that did not allow governments to address banking problems at an early stage.2 It also aimed at avoiding – or at least postponing in the short-term – the use of taxpayers’ money to finance the cost of resolving the crisis.

so jácome 'neatly' evades questions of historic context, of global trade and financial liberalization, of rent appropriation and supranational institutions such as imf and, so conveniently, plops responsibility for crises directly onto the region's governments and central banks.

fine. Roberto Frenkel's* slightly earlier article (8/2003):
Globalization and financial crises in Latin America complements and helps correct.

*"Senior Researcher, Centro de Estudios de Estado y Sociedad (CEDES), Professor at the University of Buenos Aires, Director of the Banco de la Provincia de Buenos Aires"

By: wintermute

wintermute — Sat, 03 Jan 2009 23:04:00 +0000

Anon 2:13 – Guess what really got North Korea lumped into the Axis of Evil? Was it because they have several hundred thousand people in Nazi-style concentration camps? No. Was it their nuclear weapons programme? No (but it is a black mark).
The main reason is that they mastered the counterfeiting of US currency on an industrial scale. Now that really is NOT playing by the rules!

By: Max

Max — Sat, 03 Jan 2009 22:32:00 +0000

The technology sector is unique in that it’s been operating in a deflationary mode for decades. Productivity and efficiency gains are so enormous, that existing capital erodes very quickly in value, and product prices decline _in the orders of magnitude_ if hedonistically adjusted. Maybe a vulgar example, but take a cassette Walkman of the early 90’s and a today’s iPod, compare the prices vs the features, and the deflation is astronomical.

And yet, the technology sector offers high-paying jobs and plenty of employment. It’s hard to pinpoint the reason for such ongoing vitality in the face of the fiercest competition known in history, but there it is.

By: shtove

shtove — Sat, 03 Jan 2009 20:27:00 +0000

Hmmm – what happens if you apply this analysis to the UK?

Looks like we have the twin crises in banking and currency. So is the UK a developing economy, or a mature economy?

By: mmckinl

mmckinl — Sat, 03 Jan 2009 19:54:00 +0000

the TARP has not involved balance sheet clean ups or led to price discovery. Thus at this juncture it looks like an inefficient subsidy rather than progress towards shrinking and strengthening the banking system.

Banana republic, here we come?

Not necessarily. One thing that made a bad situation worse in Latin America was that as central bank balance sheets exploded, investors shifted to foreign country assets, leading to a significant fall in local currencies. Since many companies borrowed in dollars, the credit shock increased financial pressure.

~~~~~

Did Latin American countries have trillions in derivatives?

The real answer to this crisis is a Bank Holiday, Swedish Plan that will write off bad debt and rationalize derivatives in one form or another, whether it be creating markets or out and out prohibition and force de jure through a declared national financial emergency.

Of course the ultimate answer is a truly Public Central Bank that has the right, the authority and the obligation to control all credit creation and therefore a defined credit expansion limit.