econoblog.info

A roundup of economic news from around the Web.

Central Bank Independence: On his blog, Willem Buiter says the ECB is the last independent central bank left. “The modern independent central bank was born in New Zealand in 1989. It had a short life. The onset of the financial crisis of the north Atlantic region in August 2007 signalled the beginning of the end. Today, only the ECB still has a significant degree of operational independence left, and it will have to give that up if it is to be effective in the current phase of the crisis. In other words, the ECB is the last central bank to understand that, if it is to play a significant financial stability role, it cannot retain the degree of operational independence it was granted in the Treaty over monetary policy in the pursuit of price stability.”
Fed and Bubbles: Martin Wolf of the Financial Times says central banks bear some blame for the crisis. “This unforeseen crisis is surely a disaster for monetary policy. Most of us — I was one — thought we had at last found the holy grail. Now we know it was a mirage. This may be the last chance for fiat money. If it is not made to work better than it has done, who knows what our children might decide? Perhaps, in despair, they will even embrace what I still consider to be the absurdity of gold.”
Global Financial System: Brad Setser on his blog says global capital flows shouldn’t go back to the level of the boom years. “The goal shouldn’t be to return the boom years, but rather to return to a more sustainable level of cross-border flows — or at least a system without the excesses that contributed to the current crisis. Remember, the rise in cross-border capital flows prior to the crisis was associated with a rise in the amount of leverage in the system, as a host of institutions tried to support bigger balance sheets without increasing their equity. That rise in leverage sustained a lot of cross border flows. “
Home Buyer Tax Credit: Bob Williams writes about the usefulness of home buyer tax credits on the Tax Policy Center’s TaxVox blog. “Led by Missouri, at least eleven states have created ways to help buyers cover down payments or closing costs by advancing the credit. Participating states offer qualifying homebuyers low- or no-interest loans — typically as second mortgages due when buyers receive their tax credits. Washington Treasurer James McIntire is lobbying the Obama administration to let borrowers assign their credits to the states so that loan repayments would come directly from the IRS, something not currently allowed under IRS regulations. Sending funds directly to the states would both guarantee repayment and make more funds available to help homebuyers… In our report card on the stimulus bill, TPC gave the new homebuyer credit low marks because it is poorly targeted and gives windfall gains to some people who would have bought houses without it. These new state programs will only make those problems worse. But we also predicted the credit would help perk up weak housing markets. State programs to advance the credit should boost that piece of the stimulus bill and help get housing going again.”