Tuesday, October 4, 2011

Craziest Thing I Read Today

. Tuesday, October 4, 2011

Matt Yglesias, who usually is not crazy:

Ben Bernanke isn’t the most important central banker in the world. Jean-Claude Trichet is. 
That's... crazy. Europe is certainly important, but the dollar is still the world's reserve currency, and Bernanke manages it. Plus, the Fed is responsible for overseeing the US financial system, which is central to the global financial system in a way no European countries are, separately or taken together. Additionally, the ECB isn't (technically, legally) supposed to have all that much to do with the European financial system; regulatory authority still resides with national governments. Trichet faces constraints that Bernanke doesn't face, which limits his influence, but even if that weren't true he'd be less important.

To illustrate: During the crisis, the Fed routinely provided liquidity support for foreign firms, most of which were in Europe. Has the ECB done anything similar for US firms? During the crisis the Fed opened up swap lines with every major central bank in the world. Did the ECB do anything similar? Not outside of the eurozone, as far as I can tell.

(Side note: Yglesias notes that the EU is a larger economy than the US. Which is true. But Trichet only controls monetary policy in the eurozone, not the entire EU, and eurozone GDP is roughly 75% of US GDP.)


Craziest Thing I Read Today




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