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  • Author: Jeffrey M. Lacker
  • Publication Date: 06-2012
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The financial crisis of 2007 and 2008 was a watershed event for the Federal Reserve and other central banks. The extraordinary actions they took have been described, alternatively, as a natural extension of monetary policy to extreme circumstances or as a problematic exercise in credit allocation. I have expressed my view elsewhere that much of the Fed's response to the crisis falls in the latter category rather than the former (Lacker 2010). Rather than reargue that case, I want to take this opportunity to reflect on some of the institutional reasons behind the prevailing propensity of many modern central banks to intervene in credit markets.
  • Topic: Financial Crisis
  • Political Geography: United States
  • Author: John A. Allison
  • Publication Date: 06-2012
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: I strongly believe that the recent financial crisis, ensuing recession, and slow recovery were primarily caused by government policy. The Federal Reserve made some very bad monetary decisions that created a bubble, i.e., a massive malinvestment. The bubble ended up being focused in the housing market largely because of government affordable housing policies—specifically, the actions of Freddie Mac and Fannie Mae, government-sponsored enterprises that would not exist in a free market. When Freddie and Fannie failed, they owed $5.5 trillion including $2 trillion in affordable housing (subprime) loans. It's true that a number of banks made serious mistakes, and I would have let them fail, but their mistakes were secondary and within the context of government policy.
  • Political Geography: United States
  • Author: George Melloan
  • Publication Date: 06-2012
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: “Well, if I had a nickel, I know what I would do. I'd spend it all on candy and give it all to you. . . . Cause that's how much I love you baby.” That wasn't a very generous proposition even in 1946, when country singer Eddy Arnold wrote those words. But at least a nickel would buy a good-sized Baby Ruth or Clark bar. Today? A jelly bean, perhaps?
  • Political Geography: United States, United Kingdom
  • Author: Benn Steil
  • Publication Date: 06-2012
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The financial crisis that began unfurling in 2008 has led to the refashioning of the model central bank governor along the lines of Churchillian war leader, willing to try anything with the money he conjures to restore economic growth. This raises important questions as to what limits, if any, elected officials should impose on such aspiring great men, and what limits markets will ultimately impose on them if elected officials forbear. This article focuses on the second of these questions.
  • Political Geography: United States
  • Author: Judy Shelton
  • Publication Date: 06-2012
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Something has gone terribly wrong with the world's monetary system. It's evident that some kind of fundamental reform needs to be implemented. The question is: Can governments be trusted to issue sound money, or is money too important to be left to the politicians?
  • Political Geography: United States
  • Author: Richard H. Timberlake
  • Publication Date: 06-2012
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Over the course of more than two centuries, the United States has had two monetary systems. The first was a gold-silver standard that was framed in its essentials by the U.S. Constitution. In practical terms, it said that any legal tender money created by the federal union or the states or the "people" had to be gold or silver coins, or redeemable in gold or silver coins of specified weight and fineness. Since both gold and silver were constitutional media, the country had a bimetallic standard that ultimately became a monometallic gold standard.
  • Political Geography: United States
  • Author: Ron Paul
  • Publication Date: 06-2012
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: I've thought about and have written about the Federal Reserve for a long time. I became fascinated with the monetary issue in the 1960s, having come across the Austrian economists, especially Hayek and Mises, and I was very impressed with August 15, 1971, because the predictions made in the 1960s came about. As a matter of fact, Henry Hazlitt made that prediction in 1944 when the Bretton Woods system was set up. He said it wouldn't work and it would fall apart—and it did—so that was a strong confirmation.
  • Political Geography: United States, Australia
  • Author: Kurt Schuler, William McBride
  • Publication Date: 06-2012
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: During the 18th and 19th centuries and for part of the 20th century, more than 60 countries had free banking. The major characteristics of free banking are competitive issue of notes (paper money) and deposits by commercial banks, low legal barriers to entry, little regulation unique to the industry, and no central control of reserves (the monetary base) within the national monetary system (Dowd 1992, White 1995). Among the countries that had a form of free banking was the United States. Even after the freest period of free banking ended, with the Civil War, banks continued to issue notes until the federal government effectively monopolized note issue in 1935.
  • Topic: War
  • Political Geography: United States
  • Author: Lawrence H. White
  • Publication Date: 06-2012
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Suppose for the sake of argument that we all agree to the following proposition: If we could change the monetary regime with zero switching cost, merely by snapping our fingers, we would prefer the United States to be on a gold standard. In the most general terms, a gold standard means a monetary system in which a standard mass (so many grams or ounces) of pure gold defines the unit of account, and standardized pieces of gold serve as the ultimate media of redemption. Currency notes, checks, and electronic funds transfers are all denominated in gold and are redeemable claims to gold. We then face the question: What would be the least costly way for the United States to make the transition to a new gold standard? We need to choose a low-cost method to ensure that the agreed benefits of being on the gold standard exceed the costs of switching over.
  • Political Geography: United States
  • Author: Kruti Dholakia-Lehenbauer, Euel W. Elliott
  • Publication Date: 10-2012
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: This article explores four questions. First, what theoretical frameworks help describe policy failure and success? Second, how might the decision that leads to failure or success be understood in terms of differing concepts of rationality and decisionmaking? Third, how does the discussion of risk and uncertainty as originally proposed by Frank Knight (1921) apply to a better understanding of both the first and second questions? Fourth, what is the relationship between serial and parallel processing and how are these administrative systems related to important aspects of the prior questions? Our chief contribution in this article is to show the ways in which these questions and their respective theoretical frameworks are interrelated as applied to one important contemporary policy question-climate change. We think our proposed integration of the various literatures offers important insights into the challenges policymakers face in deciding whether or not to adopt a particular policy.
  • Political Geography: United States