Episode 99
Claudio Borio | Sources of Financial Instability: Challenges for Monetary and Fiscal Policy
Episode 99
Claudio Borio
Claudio Borio | Sources of Financial Instability: Challenges for Monetary and Fiscal Policy
summary
In this week’s episode of Hidden Forces, Demetri Kofinas speaks with Claudio Borio about outstanding sources of financial instability and some of the challenges facing Central Banks as the economy and markets begin to show signs of weakness heading towards the end of 2019. Dr. Borio heads the Monetary and Economic Department at the Bank for International Settlements and has written extensively about some of the longer-term, structural forces bedeviling policymakers since the early 2000s.
More recently, the Federal Reserve held its annual Economic Symposium in Jackson Hole, Wyoming, where Fed Chairman Jay Powell delivered a speech titled, “Challenges for Monetary Policy,” in which he addresses “three longer run questions” bedeviling policymakers. In the speech, Powell breaks up the post-war history of central banking into three distinct eras: 1950–1982, 1983–2009, and 2010—. The day before Jay Powell’s speech, on August 22nd, former Treasury Secretary Larry Summers, published a series of tweets where he conducted a similar retrospective analysis of central bank policy going back to the stagflationary period of the 1970s. According to Larry Summers, “the high inflation and high-interest rates of the 1970s generated a revolution in macroeconomic thinking, policy, and institutions,” while the “low inflation, low-interest rates and stagnation of the last decade…deserves at least an equal response.” Further, Summers writes, “the financial crisis had roots in bubbles and excessive leverage caused by efforts to maintain demand after the 2001 recession,” which suggests that perhaps, the maniacal focus on inflation amplified by the experience of the stagflationary nineteen-seventies blinded central banks and policymakers to a build-up in financial risks exacerbated by keeping interest rates “too low for too long” during the 1990’s and early 2000’s.
The conversation you’re about to hear was recorded on Monday, August 19th, several days before the publication of Jay Powell’s speech, as well as Larry Summers’ tweets. Some of the key questions we attempt to answer during this discussion are: “What’s driving the slow growth environment that we are in?” “Are rates low because central banks are keeping them low, or are rates low because central banks, encouraged by a prolonged period of disinflation, kept interest rates chronically below the ‘natural rate’ for too long, thus encouraging the growth of asset price fueled credit bubbles that have turned central banks from being stewards of the expansion to now being managers of the contraction?”
Demetri and Claudio also explore the different eras highlighted in Chairman Powell’s speech, search for the origins of inflation targeting as a policy objective, question the efficacy of neutral rate targeting, and consider some of the possible consequences that could arise from an economic model that has increasingly come to rely upon debt financing in order to grow.
In the overtime, Demetri asks Dr. Claudio Borio questions about the BIS 2019 Annual report, with a keen focus on some of the more immediate risks facing the global economy. This week’s rundown is particularly useful for those seeking to gain a deeper sense of the issues discussed during the podcast. You can access that rundown, along with a transcript to this week’s episode through the Hidden Forces Supercast Page. All subscribers also gain access to our overtime feed, which can be easily be added to your favorite podcast application.
Producer & Host: Demetri Kofinas
Editor & Engineer: Stylianos Nicolaou
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bio
Claudio Borio has served as Head of the Monetary and Economic Department at the BIS for the past six years and has been at the BIS since 1987, having held various positions in the Monetary and Economic Department (MED), including Deputy Head of MED and Director of Research and Statistics as well as Head of Secretariat for the Committee on the Global Financial System and the Gold and Foreign Exchange Committee (now the Markets Committee). From 1985 to 1987, he was an economist at the OECD, working in the country studies branch of the Economics and Statistics Department. Prior to that, he was Lecturer and Research Fellow at Brasenose College, Oxford University. He holds a DPhil and an MPhil in Economics and a BA in Politics, Philosophy and Economics from the same university. Claudio is author of numerous publications in the fields of monetary policy, banking, finance and issues related to financial stability.
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Igitur neque stultorum quisquam beatus neque sapientium non beatus. Ergo hoc quidem apparet, nos ad agendum esse natos. Eaedem res maneant alio modo. Honesta oratio, Socratica, Platonis etiam. An eum discere ea mavis, quae cum plane perdidiceriti nihil sciat? Aliter enim nosmet ipsos nosse non possumus.
Quod ea non occurrentia fingunt, vincunt Aristonem; Conferam tecum, quam cuique verso rem subicias; Et hunc idem dico, inquieta sed ad virtutes et ad vitia nihil interesse. Atque haec coniunctio confusioque virtutum tamen a philosophis ratione quadam distinguitur. An est aliquid per se ipsum flagitiosum, etiamsi nulla comitetur infamia? Dicet pro me ipsa virtus nec dubitabit isti vestro beato M. Propter nos enim illam, non propter eam nosmet ipsos diligimus. Non est enim vitium in oratione solum, sed etiam in moribus. Dici enim nihil potest verius.
At, si voluptas esset bonum, desideraret. Multa sunt dicta ab antiquis de contemnendis ac despiciendis rebus humanis; At ego quem huic anteponam non audeo dicere; Virtutis, magnitudinis animi, patientiae, fortitudinis fomentis dolor mitigari solet.
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Paria sunt igitur. Videsne, ut haec concinant? Hi curatione adhibita levantur in dies, valet alter plus cotidie, alter videt. Vidit Homerus probari fabulam non posse, si cantiunculis tantus irretitus vir teneretur; Non autem hoc: igitur ne illud quidem. Quo studio Aristophanem putamus aetatem in litteris duxisse? Duo Reges: constructio interrete. Graecum enim hunc versum nostis omnes-: Suavis laborum est praeteritorum memoria. Atque hoc loco similitudines eas, quibus illi uti solent, dissimillimas proferebas. Inscite autem medicinae et gubernationis ultimum cum ultimo sapientiae comparatur. Itaque si aut requietem natura non quaereret aut eam posset alia quadam ratione consequi.
Non enim iam stirpis bonum quaeret, sed animalis. Qui potest igitur habitare in beata vita summi mali metus? Primum in nostrane potestate est, quid meminerimus? Non est ista, inquam, Piso, magna dissensio. Illis videtur, qui illud non dubitant bonum dicere -; Itaque eos id agere, ut a se dolores, morbos, debilitates repellant.
Quid enim de amicitia statueris utilitatis causa expetenda vides. Maximus dolor, inquit, brevis est. Illa sunt similia: hebes acies est cuipiam oculorum, corpore alius senescit; Cyrenaici quidem non recusant; Quo studio Aristophanem putamus aetatem in litteris duxisse? Duae sunt enim res quoque, ne tu verba solum putes. Ex eorum enim scriptis et institutis cum omnis doctrina liberalis, omnis historia. Aperiendum est igitur, quid sit voluptas; Virtutis, magnitudinis animi, patientiae, fortitudinis fomentis dolor mitigari solet. Moriatur, inquit.
In motu et in statu corporis nihil inest, quod animadvertendum esse ipsa natura iudicet? Quid ad utilitatem tantae pecuniae? Quid affers, cur Thorius, cur Caius Postumius, cur omnium horum magister, Orata, non iucundissime vixerit? Ubi ut eam caperet aut quando? Ea possunt paria non esse. An me, inquis, tam amentem putas, ut apud imperitos isto modo loquar?
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed tamen enitar et, si minus multa mihi occurrent, non fugiam ista popularia. Egone non intellego, quid sit don Graece, Latine voluptas? Traditur, inquit, ab Epicuro ratio neglegendi doloris. Quae cum essent dicta, discessimus. Deinde dolorem quem maximum? At iam decimum annum in spelunca iacet. Duo Reges: constructio interrete.
Quarum ambarum rerum cum medicinam pollicetur, luxuriae licentiam pollicetur. Cur igitur easdem res, inquam, Peripateticis dicentibus verbum nullum est, quod non intellegatur? Hoc est vim afferre, Torquate, sensibus, extorquere ex animis cognitiones verborum, quibus inbuti sumus. Graecum enim hunc versum nostis omnes-: Suavis laborum est praeteritorum memoria. An est aliquid per se ipsum flagitiosum, etiamsi nulla comitetur infamia? Non dolere, inquam, istud quam vim habeat postea videro; Satis est ad hoc responsum. Hinc ceteri particulas arripere conati suam quisque videro voluit afferre sententiam. Tollenda est atque extrahenda radicitus. Itaque eos id agere, ut a se dolores, morbos, debilitates repellant.
Apparet statim, quae sint officia, quae actiones. Disserendi artem nullam habuit. An tu me de L. Mihi enim erit isdem istis fortasse iam utendum. Nosti, credo, illud: Nemo pius est, qui pietatem-; Id est enim, de quo quaerimus. Sed quid attinet de rebus tam apertis plura requirere? Omnes enim iucundum motum, quo sensus hilaretur. Est, ut dicis, inquam. Quasi vero, inquit, perpetua oratio rhetorum solum, non etiam philosophorum sit.
Re mihi non aeque satisfacit, et quidem locis pluribus. Sed ut iis bonis erigimur, quae expectamus, sic laetamur iis, quae recordamur. Sed quid attinet de rebus tam apertis plura requirere? Legimus tamen Diogenem, Antipatrum, Mnesarchum, Panaetium, multos alios in primisque familiarem nostrum Posidonium. Ut in geometria, prima si dederis, danda sunt omnia. Commoda autem et incommoda in eo genere sunt, quae praeposita et reiecta diximus;
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nec vero intermittunt aut admirationem earum rerum, quae sunt ab antiquis repertae, aut investigationem novarum. Quid ergo? Videamus igitur sententias eorum, tum ad verba redeamus. Nunc omni virtuti vitium contrario nomine opponitur. Eorum enim omnium multa praetermittentium, dum eligant aliquid, quod sequantur, quasi curta sententia; Nummus in Croesi divitiis obscuratur, pars est tamen divitiarum. Primum in nostrane potestate est, quid meminerimus?
Nam et complectitur verbis, quod vult, et dicit plane, quod intellegam; Et harum quidem rerum facilis est et expedita distinctio. Summus dolor plures dies manere non potest? Quod autem principium officii quaerunt, melius quam Pyrrho; Tum Piso: Quoniam igitur aliquid omnes, quid Lucius noster? Nam si amitti vita beata potest, beata esse non potest. Sed nimis multa. Quorum sine causa fieri nihil putandum est.
Duo Reges: constructio interrete. Tamen aberramus a proposito, et, ne longius, prorsus, inquam, Piso, si ista mala sunt, placet. Oculorum, inquit Plato, est in nobis sensus acerrimus, quibus sapientiam non cernimus. Summum a vobis bonum voluptas dicitur. Tubulo putas dicere? Quarum ambarum rerum cum medicinam pollicetur, luxuriae licentiam pollicetur.
Quia nec honesto quic quam honestius nec turpi turpius. Nam si amitti vita beata potest, beata esse non potest. Quod autem meum munus dicis non equidem recuso, sed te adiungo socium. Quos quidem tibi studiose et diligenter tractandos magnopere censeo. Eadem nunc mea adversum te oratio est. Qui non moveatur et offensione turpitudinis et comprobatione honestatis? Itaque haec cum illis est dissensio, cum Peripateticis nulla sane. Tum mihi Piso: Quid ergo?
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Haec bene dicuntur, nec ego repugno, sed inter sese ipsa pugnant. At enim, qua in vita est aliquid mali, ea beata esse non potest. Multa sunt dicta ab antiquis de contemnendis ac despiciendis rebus humanis; Quod cum dixissent, ille contra. Duo Reges: constructio interrete. Quamquam tu hanc copiosiorem etiam soles dicere. Eiuro, inquit adridens, iniquum, hac quidem de re;
Itaque in rebus minime obscuris non multus est apud eos disserendi labor. Numquam facies. Vide igitur ne non debeas verbis nostris uti, sententiis tuis. Utrum igitur tibi litteram videor an totas paginas commovere? Et non ex maxima parte de tota iudicabis? Omnia contraria, quos etiam insanos esse vultis. At iam decimum annum in spelunca iacet. Potius inflammat, ut coercendi magis quam dedocendi esse videantur.
Oculorum, inquit Plato, est in nobis sensus acerrimus, quibus sapientiam non cernimus. Sed in rebus apertissimis nimium longi sumus. Etiam inchoatum, ut, si iuste depositum reddere in recte factis sit, in officiis ponatur depositum reddere; Scientiam pollicentur, quam non erat mirum sapientiae cupido patria esse cariorem. Septem autem illi non suo, sed populorum suffragio omnium nominati sunt.
Quam ob rem tandem, inquit, non satisfacit? Quae quidem vel cum periculo est quaerenda vobis; At miser, si in flagitiosa et vitiosa vita afflueret voluptatibus. At ego quem huic anteponam non audeo dicere; Ergo ita: non posse honeste vivi, nisi honeste vivatur? An hoc usque quaque, aliter in vita?
