Eco+Nomics

This post is an attempt to use my rather inexperienced and naive instinct in economics in order to respond to the allegations of the necessity of austerity and tight monetary policy. More specifically, I post  my reply to the arguments presented in "The Live arguments of austerity right now: A bestiary" by Mr. DeLong . Please, forgive me if I am wrong. The first group stresses the importance of tight monetary policy. "The Jeremy Stein argument" : Stein ignores the other element of GDP; the consumption. With lower interest rates households can more easily substitute future for current income. Secondly, risk premium is added to the risk-free rate both when the risk-free is 0% and when it is higher, e.g. 10%, and hence risky assets yield by definition higher returns regardless the level of the risk-free rate. Therefore, bank managers will always prefer more risky assets due to the higher returns they offer anyway. Thirdly, there is always the Basel Accord tha...

After the ultimatum issued by the ECB  one might wonder about the independence of the ECB and its subsequent credibility. Is the orchestrator of the Eurosystem really independent, conditionally independent or totally dependent to the political agenda of any given moment? Its dependence or independence extends to which degree? First of all, the direct funding of public sector, i.e. public debt, is prohibited in the name of the credibility and independence of a central bank (here, the ECB). I must admit that I do not rigorously disagree with the necessity of independence, at least under certain circumstances. What about when a central bank is used as a leverage to political negotiation? What about when the central bank (any given one) turn a blind eye to imminent systemic risks of extended destabilization? What are the motives of this attitude? Why all of the ECB controversial measures have been proven to be cripple so far? When the monetary authority does not seem annoyed at al...