Finance

The economics profession stands on the fragile foundation of presuppositions adopted by professional agreement rather than as a result of empirical observation.

The human brain relies on three devices for its decisions: emotion controls; addictive learning; and intellectual processing. Understanding the conditions under which the three devices are engaged is essential for conscious decision-making.

George Soros, Axel Leijonhufvud and Perry Mehrling in Berlin, Germany (2012).

FT Alphaville has picked up on my friend James Sweeney’s latest, and since James cites the latest writings by other friends Zoltan Pozsar, Manmohan Singh, as well as my own most recent, the piece reads like a discussant’s comments on a shadow banking symposium.

Last week the central banks of China and Australia announced the creation of a $31bn currency swap line

Entangling alliances or entangling leagues are nothing to the entanglements of cash owing—Keynes

Discussion of the results of the ECB’s LTRO2 has revolved around the question of hoarding, specifically whether banks are using the newly-created reserves to fund new lending.

Fundamentally, the ECB is trying to keep the ongoing sovereign debt crisis from turning into a full-fledged bank credit crisis.

Perry and I extend our apologies for the unplanned hiatus. By way of breaking radio silence, it seems appropriate to check in on our two favorite banks.

A money view of SDRs

From a money view perspective, the central issue is settlement of TARGET balances between national central banks within the Eurozone, and the key is to understand TARGET balances as a kind of interbank correspondent balance.