Thursday, May 16, 2024

Some things don't change with respect to central banking

 


This cartoon is an old trope against central banking, yet it will not go away. The Fed does not have a dual mandate of growth and stable prices, but a third mandate to maintain financial stability which results in policies that protect large banks and other financial institutions. For the Main Street crowd, financial stability through some form of bailout to ensure that bankers don't face the consequences of their actions seems to point to our old cartoon. Cn this perception be avoided? The answer is not clear, but the Fed has generally erred in the direction of supporting banks which have gotten larger than pre-GFC levels. Of course, there is more regulation but that only helps the financial institutions that are too big to fail. The fixed cost is too high for smaller institutions.

Old tropes do not go away because old behavior does not change.

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