As financial markets continue to broaden and deepen, the behavior of asset prices will play an important role in the formulation of monetary policy going forward, perhaps a more important role than in the past.
Most consequential choices involve shades of gray, and some fog is often useful in getting things done.
The choice is between which mistake is easier to correct: underdoing it or overdoing it.
We have parts of our system which are overwhelmed by regulation. It wasn’t the absence of regulation that was the problem. It was despite the presence of regulation you got huge risks built up.
I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar.
The plausible outcomes range from the gradual and benign to the more precipitous and damaging.
Financial crises require governments.
The rest of the world needs the US economy and financial system to recover in order for it to revive. We remain at the center of global economic activity with financial and trade ties to every region of the globe.
The government can help, but we need to make this transition now to a recovery led by private investment, private.
The recognition that things that are not sustainable will eventually come to an end does not give us much of a guide to whether the transition will be calm or exciting.
Looking past the immediate crisis, a more resilient system must be built on stronger and better designed shock absorbers, both in the major institutions and in the infrastructure of the financial system.
Monetary policy itself cannot sensibly be directed at reducing imbalances.
In the financial system we have today, with less risk concentrated in banks, the probability of systemic financial crises may be lower than in traditional bank-centered financial systems.
Never before in modern times has so much of the world been simultaneously hit by a confluence of economic and financial turmoil such as we are now living through.
Some think that by preparing to deal with crises you make them more likely. I think the wiser judgment is the contrary. In this area at least, if you want peace or stability, it’s better to prepare for war or instability.
The substantial uncertainty about the path of asset price movements going forward necessarily reduces the case for altering policy in advance of the move.
This crisis is not simply a more severe version of the usual business cycle recession, the typical downturn in which economies ultimately adjust and stabilize.
There is a basic lesson on financial crises that governments tend to wait too long, underestimate the risks, want to do too little. And it ultimately gets away from them, and they end up spending more money, causing much more damage to the economy.
The rating agencies were not exceedingly competent.
Financial stability cannot depend on omniscient supervisors identifying and preemptively defusing any potential source of crisis; it requires safeguards that can help the system withstand the force of a severe storm, and tools the government can use to limit the damage.