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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Quid ad utilitatem tantae pecuniae? Et summatim quidem haec erant de corpore animoque dicenda, quibus quasi informatum est quid hominis natura postulet. Ab his oratores, ab his imperatores ac rerum publicarum principes extiterunt. Etenim nec iustitia nec amicitia esse omnino poterunt, nisi ipsae per se expetuntur. Ut alios omittam, hunc appello, quem ille unum secutus est. Egone non intellego, quid sit don Graece, Latine voluptas? Atque ab his initiis profecti omnium virtutum et originem et progressionem persecuti sunt. Omnia peccata paria dicitis.
Cur tantas regiones barbarorum pedibus obiit, tot maria transmisit? Itaque hic ipse iam pridem est reiectus; Nam diligi et carum esse iucundum est propterea, quia tutiorem vitam et voluptatem pleniorem efficit. Quorum sine causa fieri nihil putandum est. Tum ille timide vel potius verecunde: Facio, inquit. Quid enim de amicitia statueris utilitatis causa expetenda vides. Nec lapathi suavitatem acupenseri Galloni Laelius anteponebat, sed suavitatem ipsam neglegebat; Age, inquies, ista parva sunt.
Bestiarum vero nullum iudicium puto. Quaerimus enim finem bonorum. Octavio fuit, cum illam severitatem in eo filio adhibuit, quem in adoptionem D. Callipho ad virtutem nihil adiunxit nisi voluptatem, Diodorus vacuitatem doloris. Eodem modo is enim tibi nemo dabit, quod, expetendum sit, id esse laudabile. In omni enim arte vel studio vel quavis scientia vel in ipsa virtute optimum quidque rarissimum est.
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam si quae sunt aliae, falsum est omnis animi voluptates esse e corporis societate. Cum id fugiunt, re eadem defendunt, quae Peripatetici, verba. Quia dolori non voluptas contraria est, sed doloris privatio. Duo Reges: constructio interrete. Quae fere omnia appellantur uno ingenii nomine, easque virtutes qui habent, ingeniosi vocantur. Idem fecisset Epicurus, si sententiam hanc, quae nunc Hieronymi est, coniunxisset cum Aristippi vetere sententia. Atqui reperies, inquit, in hoc quidem pertinacem; Quamquam ab iis philosophiam et omnes ingenuas disciplinas habemus; Multa sunt dicta ab antiquis de contemnendis ac despiciendis rebus humanis; At cum de plurimis eadem dicit, tum certe de maximis.
Non enim iam stirpis bonum quaeret, sed animalis. Quid enim ab antiquis ex eo genere, quod ad disserendum valet, praetermissum est? Iam quae corporis sunt, ea nec auctoritatem cum animi partibus, comparandam et cognitionem habent faciliorem. Nam Pyrrho, Aristo, Erillus iam diu abiecti. Nam quid possumus facere melius? Morbo gravissimo affectus, exul, orbus, egens, torqueatur eculeo: quem hunc appellas, Zeno? Sin eam, quam Hieronymus, ne fecisset idem, ut voluptatem illam Aristippi in prima commendatione poneret. Qui ita affectus, beatum esse numquam probabis; Quis negat? Ut enim consuetudo loquitur, id solum dicitur honestum, quod est populari fama gloriosum. Atque haec ita iustitiae propria sunt, ut sint virtutum reliquarum communia. Bonum valitudo: miser morbus.
Dicet pro me ipsa virtus nec dubitabit isti vestro beato M. Iam id ipsum absurdum, maximum malum neglegi. Quam ob rem tandem, inquit, non satisfacit? Quod mihi quidem visus est, cum sciret, velle tamen confitentem audire Torquatum. Negat enim summo bono afferre incrementum diem. Praeclarae mortes sunt imperatoriae; Cum ageremus, inquit, vitae beatum et eundem supremum diem, scribebamus haec. Cur tantas regiones barbarorum pedibus obiit, tot maria transmisit?
Superiores tres erant, quae esse possent, quarum est una sola defensa, eaque vehementer. Quod ea non occurrentia fingunt, vincunt Aristonem; At iam decimum annum in spelunca iacet. Sed virtutem ipsam inchoavit, nihil amplius. Sed ad bona praeterita redeamus. Erat enim Polemonis. Summum ením bonum exposuit vacuitatem doloris;
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nec lapathi suavitatem acupenseri Galloni Laelius anteponebat, sed suavitatem ipsam neglegebat; Tollenda est atque extrahenda radicitus. Duo Reges: constructio interrete. Quid est, quod ab ea absolvi et perfici debeat? Si quicquam extra virtutem habeatur in bonis. Cur tantas regiones barbarorum pedibus obiit, tot maria transmisit? Si quidem, inquit, tollerem, sed relinquo. Te enim iudicem aequum puto, modo quae dicat ille bene noris.
Ut alios omittam, hunc appello, quem ille unum secutus est. Ita relinquet duas, de quibus etiam atque etiam consideret. Occultum facinus esse potuerit, gaudebit; Tollenda est atque extrahenda radicitus. Tu enim ista lenius, hic Stoicorum more nos vexat. An ea, quae per vinitorem antea consequebatur, per se ipsa curabit? Idemque diviserunt naturam hominis in animum et corpus. Verba tu fingas et ea dicas, quae non sentias?
Eam tum adesse, cum dolor omnis absit; Idem iste, inquam, de voluptate quid sentit? Ergo, si semel tristior effectus est, hilara vita amissa est? Non enim, si omnia non sequebatur, idcirco non erat ortus illinc. Intrandum est igitur in rerum naturam et penitus quid ea postulet pervidendum;
Mene ergo et Triarium dignos existimas, apud quos turpiter loquare? Somnum denique nobis, nisi requietem corporibus et is medicinam quandam laboris afferret, contra naturam putaremus datum; Ita enim vivunt quidam, ut eorum vita refellatur oratio. Saepe ab Aristotele, a Theophrasto mirabiliter est laudata per se ipsa rerum scientia; Quid, si non sensus modo ei sit datus, verum etiam animus hominis? Sed residamus, inquit, si placet.
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maximus dolor, inquit, brevis est. In quibus doctissimi illi veteres inesse quiddam caeleste et divinum putaverunt. Summus dolor plures dies manere non potest? Tu autem negas fortem esse quemquam posse, qui dolorem malum putet. Quasi vero, inquit, perpetua oratio rhetorum solum, non etiam philosophorum sit. Duo Reges: constructio interrete.
Si longus, levis; Facillimum id quidem est, inquam.
Morbo gravissimo affectus, exul, orbus, egens, torqueatur eculeo: quem hunc appellas, Zeno? Estne, quaeso, inquam, sitienti in bibendo voluptas? Nam quibus rebus efficiuntur voluptates, eae non sunt in potestate sapientis. Hoc ipsum elegantius poni meliusque potuit. Cupiditates non Epicuri divisione finiebat, sed sua satietate. Quo tandem modo? Tollitur beneficium, tollitur gratia, quae sunt vincla concordiae. Aliena dixit in physicis nec ea ipsa, quae tibi probarentur;
Tu vero, inquam, ducas licet, si sequetur; Ego vero volo in virtute vim esse quam maximam; Non est enim vitium in oratione solum, sed etiam in moribus. Primum in nostrane potestate est, quid meminerimus? Quis non odit sordidos, vanos, leves, futtiles? Vitiosum est enim in dividendo partem in genere numerare. Cur igitur, inquam, res tam dissimiles eodem nomine appellas? Primum divisit ineleganter;