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August 7, 2012

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Posted: 13 Jun 2012 12:22 AM PDT
Tim Duy:
Easing Seems Likely, But of What Form?, by Tim Duy: The Federal Reserve meeting is bearing down upon us. We have witnessed a variety of Fed views across the spectrum over the past two weeks presenting a number of options: Continue Operation Twist, expand balance sheet operations, extend the forward guidance, other non-specified communication tools, or just plain do nothing. I would say on net the balance of talk leans toward some kind of action, although we do not know the intentions of Federal Reserve Chairman Ben Bernanke. There was no strong hint in his testimony last week. Given his revealed preferences over the past six months, I tend to believe that he is hesitant to undertake additional balance sheet operations at this time. I don't think he sees the appropriate risk/reward trade off for such an action. An extension of Operation Twist (limited though by the Fed's dwindling supply of short-term securities) seems to be a reasonable middle ground (I was probably a little pessimistic on this point last week), as it at least doesn't move policy backwards.
Last week, San Francisco Federal Reserve President John Williams presented a rather dour economic forecast:
Putting it all together, my forecast calls for real gross domestic product to expand at a moderate pace of about 2¼ percent this year and about 2½ percent next year. I expect the unemployment rate to remain at or a bit above 8 percent for the remainder of this year, and then gradually decline to a little above 7 percent by the end of 2014.
More important for policy is his view of the risks to that forecast:
However, the uncertainty around this forecast is great.
Notably, not only is the uncertainty great, he appears to believe that the vast majority is tail risk on the wrong side of his forecast. Europe featured prominently as a risk, with his conclusion:
Recurrent spikes in fear and uncertainty are followed by piecemeal actions that buy time. What hasn't emerged is a credible, comprehensive solution to Europe's problems.
The single biggest reason for the Fed to ease next week is the ongoing European turmoil. Reading between the lines, it seems clear that Williams - and I suspect this sentiment is pervasive on Constitution Ave. - believes the Europeans are generally clueless and institutionally incapable of resolving their crisis. If the Fed believes Europe is on the fast track to economic depression, the rational response is to act now to cushion the blow to the US.
Yesterday, Williams widened his scope:
While the global financial system is stronger than it was three years ago, it remains vulnerable. The European sovereign debt crisis threatens banks in that continent, and, by extension, elsewhere. Clearly, it represents a significant threat to financial stability. In the worst case, the European crisis could undermine the financial improvements in North America and Asia. But this crisis is by no means the only risk. Economic trends in many parts of the world appear to be deteriorating. Although growth in the United States remains moderate, Europe looks to be in recession. And, in China, recent indicators point to a marked deceleration in growth. Many large global financial institutions remain highly leveraged and rely on volatile wholesale funding. Others are still working through troubled loan portfolios. Efforts by regulators to close loopholes exposed by the crisis remain a work in progress. They will take years to complete.
In other words, the world has only deteriorated further in the last week. How should the Fed respond? Williams was a little cagey last week:
In sum, I see the Fed falling short on both our maximum employment and inflation mandates for some time. And the turmoil in Europe and government fiscal retrenchment in the United States raise the danger that the economy could perform worse than I expect. For these reasons, it's crucial that we maintain our current highly stimulatory monetary policy stance. As part of this, we've stated our intention to keep our benchmark short-term interest rate at exceptionally low levels at least through late 2014.
We must also stand ready to do even more if needed to best achieve our statutory goals of maximum employment and price stability....
I find this irritating - Williams sees the Fed falling short of its mandate, with the risks all on the downside, yet his response is that we should just maintain existing policy? Apparently, we need things to get worse:
...If the outlook for growth worsens to the point that we no longer expect to make sustained progress on bringing the unemployment rate down to levels consistent with our dual mandate, or if the medium-term outlook for inflation falls significantly below our 2 percent target, then additional monetary accommodation would be warranted.
What I think is going on is that, left to his own devices, Williams would have eased already, and is certainly even more inclined to do so given the deteriorating economic environment in the last week alone. He is not willing to call for additional easing directly, however, as he doesn't want to risk contradicting the decision of the FOMC.
How should the Fed proceed? According to Williams:
In such circumstances, an effective tool would be further purchases of longer-maturity securities, potentially including agency mortgage-backed securities. Past purchases have succeeded in lowering borrowing costs and improving financial conditions, thereby supporting economic recovery.
I highlight this line because it differs slightly from what Yellen said last week:
If the Committee were to judge that the recovery is unlikely to proceed at a satisfactory pace (for example, that the forecast entails little or no improvement in the labor market over the next few years), or that the downside risks to the outlook had become sufficiently great, or that inflation appeared to be in danger of declining notably below its 2 percent objective, I am convinced that scope remains for the FOMC to provide further policy accommodation either through its forward guidance or through additional balance-sheet actions.
Yellen includes forward guidance as a tool, although she later notes that:
...the effects of forward guidance are likely to be weaker the longer the horizon of the guidance, implying that it may be difficult to provide much more stimulus through this channel.
The communications tool could be an alternative to balance sheet tools at this next FOMC meeting. The same thought was reiterated yesterday by Atlanta Federal Reserve President Dennis Lockhart, although he is not in the easing camp just yet:
"I don't think any of the options should be taken off the table under the current circumstances. But I'm not convinced at this moment that the circumstances quite yet call for additional action," Lockhart told reporters.
He added that an adjustment to the way the U.S. central bank communicates, as opposed to asset purchases, is a possible easing tool if needed.
As an aside, Lockhart disappoints with this:
"It remains to be seen whether that picture holds, therefore it remains to be seen whether we might need further action to sustain that level of attractive interest rates for borrowers," Lockhart said of the ultra low yields.
"It does in some respects take the pressure off, to do something about financial conditions per se," he added.
He sees lower yields as an excuse not to act. The correct response is to see yields as a signal that they should act.
My instinct is that the Fed will want to take some action at the next meeting. As a baseline, consider this concluding remark from David Altig and John Robertson:
In such an environment, it is probably good to remember that standing pat with central bank asset purchases does not necessarily mean standing still with monetary policy.
Doing nothing is not an option. But I sense they will not be eager to expand the balance sheet. I am having trouble seeing Federal Reserve Chairman Ben Bernanke as wanting to pursue the latter option without what he feels is a compelling financial or economic reason. Perhaps I am too pessimistic on this point, but whenever I read the list of current FOMC voting members I see a group of people that well before today wanted to ease more or were willing to ease more if Bernanke has pushed in that direction. It's not the official "hawks," but "hawk-light" Bernanke that is the obstacle to additional asset purchases.
The Fed could opt for a communications only strategy. But of what form would the communication take? Optimally, I would be hopeful for the state-contingent approach that Chicago Federal Reserve President Charles Evans once again promoted today:
The Chicago Fed chief again lobbied for the central bank to take more aggressive steps to stimulate growth.
The Fed's current policy is to keep the short-term federal-funds rate near zero at least through late 2014. Mr. Evans favors "improved forward guidance" for conditions that would warrant a funds rate increase. He would like to see the Fed specify that it won't raise the rate until the U.S. unemployment rate falls below 7%, or if inflation rises above 3%, which is above the Fed's 2% inflation target.
A 7% jobless rate is still too high, "but it's in the right direction," Mr. Evans said.
A clearer policy about the Fed's "forward intentions" for the funds rate would eliminate some of the uncertainty among hesitant entrepreneurs, he added.
The challenge I see is that I can't imagine Bernanke willing to accept inflation up to 3%. I just don't see it happening. I don't think the Fed is ready to provide guidance dependent on economic outcomes, and certainly not anything that contradicts their newly minted statement committing to a 2% inflation target.
Excluding the Evans approach, what is left? Extending the horizon of the period of low rates, which Yellen suggests is not particularly effective? Moreover, I am not sure they have enough clarity on the economic outlook to extend the horizon on exceptionally low rates, which just proves how unwieldy this tool really is. It would be so much easier to set up macroeconomic targets that would trigger a rate hike rather than an arbitrary time frame. Possibly just a sternly worded easing bias given the prevalence of downside risks? I do worry that the latter is all we will get next week.
Bottom Line: The Fed is running out of room to maneuver in the absence of expanding the balance sheet further. And I don't see that Bernanke wants to take that road in the absence of a more significant downturn in the economy. They can continue Operation Twist, but they have limited room on that front given the dwindling supply of short-term assets. Some sort of communication tool is also on the table. Absolutely nothing is not really on the table. So my expectations at this point, in order of likelihood are: 1.) Continue Operation Twist , 2.) communicate a clear easing bias with a hair-trigger, 3.) combine communication with continuing Operation Twist, making is clear that if conditions deteriorate further, Operation Twist will be converted to outright asset purchases when the scope for twisting ends, or 4.) additional asset purchases.
Sorry for the long post; this is a tough nut to crack. Too many options; this was easier when it was all about 25bp.
Posted: 13 Jun 2012 12:06 AM PDT
Posted: 12 Jun 2012 03:28 PM PDT
One more from Barry Eichengreen -- like Dean Baker, he supports work sharing as a way to create more jobs and increase employment:
Share the Work, by Barry Eichengreen, Commentary, Project Syndicate: The United States today is facing a crisis of long-term unemployment unlike anything it has seen since the 1930's. Some 40% of the unemployed have been out of work for six months or more... For those unfortunate enough to experience it, long-term unemployment ... is a tragedy. And, for society as a whole, there is the danger that the productive capacity of a significant portion of the labor force will be impaired.
What is not well known, however, is that in the 1930's, the United States, to a much greater extent than today, succeeded in mitigating these problems. Rather than resorting to extensive layoffs, firms had their employees work a partial week. ... The 24% unemployment reached at the depths of the Great Depression was no picnic. But that rate would have been even higher had average weekly hours for workers in manufacturing remained at 45. Cutting hours by 20% allowed millions of additional workers to stay on the job. ...
Why was there so much work-sharing in the 1930's? One reason is that government pushed for it. ... Second, legislation encouraged it. ... [Today,] unemployment insurance ... could be restructured to encourage it. Partial benefits could be paid to workers on short hours...
In fact, the US already has something along these lines: a program known as Short-Time Compensation. Workers can collect unemployment benefits pro-rated according to their hours... Unfortunately, the financial incentives that the federal government provides are ... limited... And those programs, in turn, are too modest...
Other countries have gone further. ...Germany, for example... The US federal government could emulate this example by compensating the states more generously for their Short-Term Compensation programs. Its failure to do so not only inflicts avoidable pain and suffering on the unemployed, but also threatens to inflict long-term costs on American society.
The unemployment problem ought to be a national emergency. The fact that it's not tells me that our political institutions are broken, at least when it comes to defending the interests of the working class (other interests are anything but ignored). Millions of people are struggling to get by without a job, and instead of mobilizing on their behalf and finding some way to make things better -- there is plenty to do and plenty of people who would be glad to do it -- some policymakers are calling them lazy and trying to make it even worse by cutting what help they do get, while others who ought to know better stand by passively watching this happen, or worse join the cause. We can do better than this, but it has to be a priority for those who control the levers of power. Unfortunately, in our dysfunctional political system, improving the lives of the working class is less a priority than serving the interests of those who finance, and hence hold the keys to, reelection.
Posted: 12 Jun 2012 01:11 PM PDT
David Frum on Twitter:
Jeb Bush, you picked this fight. Now win it. Don't back down!
Do the Bruce Bartletts, David Frums, and Jeb Bushes in the GOP have any chance of reclaiming the Party and bringing it back to sanity? If Republicans lose the election, the after-loss soul-searching will likely conclude that extremism was a problem, and perhaps there's a chance for more moderate voices to take control. But if Republicans win (shudder), the rightward drift on both sides of the political aisle is likely to continue. We will not be a "kinder, gentler" nation.
Posted: 12 Jun 2012 09:02 AM PDT
Brad DeLong and Barry Eichengreen describe how, to their "surprise, alarm and dismay, we find ourselves watching a rerun of Europe in 1931" in this new introduction to Charles Kindleberger's book World in Depression, 1929-1939:
New preface to Charles Kindleberger, The World in Depression 1929-1939, by J. Bradford DeLong and Barry Eichengreen, Vox EU: The parallels between Europe in the 1930s and Europe today are stark, striking, and increasingly frightening. We see unemployment, youth unemployment especially, soaring to unprecedented heights. Financial instability and distress are widespread. There is growing political support for extremist parties of the far left and right.
Both the existence of these parallels and their tragic nature would not have escaped Charles Kindleberger, whose World in Depression, 1929-1939 was published exactly 40 years ago, in 1973.1  Where Kindleberger's canvas was the world, his focus was Europe. While much of the earlier literature, often authored by Americans, focused on the Great Depression in the US, Kindleberger emphasized that the Depression had a prominent international and, in particular, European dimension. It was in Europe where many of the Depression's worst effects, political as well as economic, played out. And it was in Europe where the absence of a public policy authority at the level of the continent and the inability of any individual national government or central bank to exercise adequate leadership had the most calamitous economic and financial effects.2
These were ideas that Kindleberger impressed upon generations of students as well on his reading public. Indeed, anyone fortunate enough to live in New England in the early 1980s and possessed of even a limited interest in international financial and monetary history felt compelled to walk, drive or take the T (as metropolitan Boston's subway is known to locals) down to MIT's Sloan Building in order to listen to Kindleberger's lectures on the subject (including both the authors of this preface). We understood about half of what he said and recognized about a quarter of the historical references and allusions. The experience was intimidating: Paul Krugman, who was a member of this same group and went on to be awarded the Nobel Prize for his work in international economics, has written how Kindleberger's course nearly scared him away from international macroeconomics. Kindleberger's lectures were surely "full of wisdom", Krugman notes. But then, "who feels wise in their twenties?" (Krugman 2002).
There was indeed much wisdom in Kindleberger's lectures, about how markets work, about how they are managed, and especially about how they can go wrong. It is no accident that when Martin Wolf, dean of the British financial journalists, challenged then former-US Treasury Secretary Lawrence Summers in 2011 to deny that economists had proven themselves useless in the 2008-9 financial crisis, Summers's response was that, to the contrary, there was a useful economics. But what was useful for understanding financial crises was to be found not in the academic mainstream of mathematical models festooned with Greek symbols and complex abstract relationships but in the work of the pioneering 19th century financial journalist Walter Bagehot, the 20th-century bubble theorist Hyman Minsky, and "perhaps more still in Kindleberger" (Wolf and Summers 2011).
Summers was right. We speak from personal experience: for a generation the two of us have been living – very well, thank you – off the rich dividends thrown off by the intellectual capital that we acquired from Charles Kindleberger, earning our pay cheques by teaching our students some small fraction of what Charlie taught us. Three lessons stand out, the first having to do with panic in financial markets, the second with the power of contagion, the third with the importance of hegemony.
First, panic. Kindleberger argued that panic, defined as sudden overwhelming fear giving rise to extreme behavior on the part of the affected, is intrinsic in the operation of financial markets. In The World in Depression he gave the best ever "explain-and-illustrate-with-examples" answer to the question of how and why panic occurs and financial markets fall apart. Kindleberger was an early apostate from the efficient-markets school of thought that markets not just get it right but also that they are intrinsically stable. His rival in attempting to explain the Great Depression, Milton Friedman, had famously argued that speculation in financial markets can't be destabilizing because if destabilizing speculators drive asset values away from justified, or equilibrium, levels, such speculators will lose money and eventually be driven out of the market.3  Kindleberger pushed back by observing that markets can continue to get it wrong for a very, very long time. He girded his position by elaborating and applying the work of Minsky, who had argued that markets pass through cycles characterized first by self-reinforcing boom, next by crash, then by panic, and finally by revulsion and depression. Kindleberger documented the ability of what is now sometimes referred to as the Minsky-Kindleberger framework to explain the behavior of markets in the late 1920s and early 1930s – behavior about which economists otherwise might have arguably had little of relevance or value to say. The Minsky paradigm emphasizing the possibility of self-reinforcing booms and busts is the organizing framework of The World in Depression. It then comes to the fore in all its explicit glory in Kindleberger's subsequent book and summary statement of the approach, Mania, Panics and Crashes.4
Kindleberger's second key lesson, closely related, is the power of contagion. At the centre of The World in Depression is the 1931 financial crisis, arguably the event that turned an already serious recession into the most severe downturn and economic catastrophe of the 20th century. The 1931 crisis began, as Kindleberger observes, in a relatively minor European financial centre, Vienna, but when left untreated leapfrogged first to Berlin and then, with even graver consequences, to London and New York. This is the 20th century's most dramatic reminder of quickly how financial crises can metastasize almost instantaneously. In 1931 they spread through a number of different channels. German banks held deposits in Vienna. Merchant banks in London had extended credits to German banks and firms to help finance the country's foreign trade. In addition to financial links, there were psychological links: as soon as a big bank went down in Vienna, investors, having no way to know for sure, began to fear that similar problems might be lurking in the banking systems of other European countries and the US. In the same way that problems in a small country, Greece, could threaten the entire European System in 2012, problems in a small country, Austria, could constitute a lethal threat to the entire global financial system in 1931 in the absence of effective action to prevent them from spreading. This brings us to Kindleberger's third lesson, which has to do with the importance of hegemony, defined as a preponderance of influence and power over others, in this case over other nation states. Kindleberger argued that at the root of Europe's and the world's problems in the 1920s and 1930s was the absence of a benevolent hegemon: a dominant economic power able and willing to take the interests of smaller powers and the operation of the larger international system into account by stabilizing the flow of spending through the global or at least the North Atlantic economy, and doing so by acting as a lender and consumer of last resort. Great Britain, now but a middle power in relative economic decline, no longer possessed the resources commensurate with the job. The rising power, the US, did not yet realize that the maintenance of economic stability required it to assume this role. In contrast to the period before 1914, when Britain acted as hegemon, or after 1945, when the US did so, there was no one to stabilize the unstable economy. Europe, the world economy's chokepoint, was rendered rudderless, unstable, and crisis- and depression-prone. That is Kindleberger's World in Depression in a nutshell. As he put it in 1973:
"The 1929 depression was so wide, so deep and so long because the international economic system was rendered unstable by British inability and United States unwillingness to assume responsibility for stabilizing it in three particulars: (a) maintaining a relatively open market for distress goods; (b) providing counter-cyclical long-term lending; and (c) discounting in crisis…. The world economic system was unstable unless some country stabilized it, as Britain had done in the nineteenth century and up to 1913. In 1929, the British couldn't and the United States wouldn't. When every country turned to protect its national private interest, the world public interest went down the drain, and with it the private interests of all…"
Subsequently these insights stimulated a considerable body of scholarship in economics, particularly models of international economic policy coordination with and without a dominant economic power, and in political science, where Kindleberger's "theory of hegemonic stability" is perhaps the leading approach used by political scientists to understand how order can be maintained in an otherwise anarchic international system.5
It might be hoped that something would have been learned from this considerable body of scholarship. Yet today, to our surprise, alarm and dismay, we find ourselves watching a rerun of Europe in 1931. Once more, panic and financial distress are widespread. And, once more, Europe lacks a hegemon – a dominant economic power capable of taking the interests of smaller powers and the operation of the larger international system into account by stabilizing flows of finance and spending through the European economy. The ECB does not believe it has the authority: its mandate, the argument goes, requires it to mechanically pursue an inflation target – which it defines in practice as an inflation ceiling. It is not empowered, it argues, to act as a lender of the last resort to distressed financial markets, the indispensability of a lender of last resort in times of crisis being another powerful message of The World in Depression. The EU, a diverse collection of more than two dozen states, has found it difficult to reach a consensus on how to react. And even on those rare occasions where it does achieve something approaching a consensus, the wheels turn slowly, too slowly compared to the crisis, which turns very fast.
The German federal government, the political incarnation of the single most consequential economic power in Europe, is one potential hegemon. It has room for countercyclical fiscal policy. It could encourage the European Central Bank to make more active use of monetary policy. It could fund a Marshall Plan for Greece and signal a willingness to assume joint responsibility, along with its EU partners, for some fraction of their collective debt. But Germany still thinks of itself as the steward is a small open economy. It repeats at every turn that it is beyond its capacity to stabilize the European system: "German taxpayers can only bear so much after all". Unilaterally taking action to stabilize the European economy is not, in any case, its responsibility, as the matter is perceived. The EU is not a union where big countries lead and smaller countries follow docilely but, at least ostensibly, a collection of equals. Germany's own difficult history in any case makes it difficult for the country to assert its influence and authority and equally difficult for its EU partners, even those who most desperately require it, to accept such an assertion.6 Europe, everyone agrees, needs to strengthen its collective will and ability to take collective action. But in the absence of a hegemon at the European level, this is easier said than done.
The International Monetary Fund, meanwhile, is not sufficiently well capitalized to do the job even were its non-European members to permit it to do so, which remains doubtful. Viewed from Asia or, for that matter, from Capitol Hill, Europe's problems are properly solved in Europe. More concretely, the view is that the money needed to resolve Europe's economic and financial crisis should come from Europe. The US government and Federal Reserve System, for their part, have no choice but to view Europe's problems from the sidelines. A cash-strapped US government lacks the resources to intervene big-time in Europe's affairs in 1948; there will be no 21st century analogue of the Marshall Plan, when the US through the Economic Recovery Program, of which the young Charles Kindleberger was a major architect, extended a generous package of foreign aid to help stabilize an unstable continent. Today, in contrast, the Congress is not about to permit Greece, Ireland, Portugal, Italy, and Spain to incorporate in Delaware as bank holding companies and join the Federal Reserve System.7
In a sense, Kindleberger predicted all this in 1973. He saw the power and willingness of the US to bear the responsibility and burden of sacrifice required of benevolent hegemony as likely to falter in subsequent generations. He saw three positive and three negative branches on the then-future's probability tree. The positive outcomes were: "[i] revived United States leadership… [ii] an assertion of leadership and assumption of responsibility... by Europe…" [sitting here, in 2013, one might be tempted to add emerging markets like China as potentially stepping into the leadership breach, although in practice the Chinese authorities have been reluctant to go there, and] [iii] cession of economic sovereignty to international institutions…." Here, in a sense, Kindleberger had both global and regional – meaning European – institutions in mind. "The last", meaning a global solution, "is the most attractive", he concluded," but perhaps, because difficult, the least likely…" The negative outcomes were: "(a) the United States and the [EU] vying for leadership… (b) one unable to lead and the other unwilling, as in 1929 to 1933… (c) each retaining a veto… without seeking to secure positive programs…"
As we write, the North Atlantic world appears to have fallen foul to his bad outcome (c), with extraordinary political dysfunction in the US preventing its government from acting as a benevolent hegemon, and the ruling mandarins of Europe, in Germany in particular, unwilling to step up and convince their voters that they must assume the task.
It was fear of this future that led Kindleberger to end The World in Depression with the observation: "In these circumstances, the third positive alternative of international institutions with real authority and sovereignty is pressing."
Indeed it is, more so now than ever.
References
Eichengreen, Barry (1987), "Hegemonic Stability Theories of the International Monetary System", in Richard Cooper, Barry Eichengreen, Gerald Holtham, Robert Putnam and Randall Henning (eds.), Can Nations Agree? Issues in International Economic Cooperation, The Brookings Institution, 255-298.
Friedman, Milton (1953), "The Case for Flexible Exchange Rates", in Essays in Positive Economics, University of Chicago Press.
Friedman, Milton and Anna J Schwartz (1963), A Monetary History of the United States, 1967-1960, Princeton University Press.
Gilpin, Robert (1987), The Political Economy of International Relations, Princeton University Press.
Keohane, Robert (1984), After Hegemony, Princeton University Press.
Kindleberger, Charles (1978), Manias, Panics and Crashes, Norton.
Krugman, Paul (2003), "Remembering Rudi Dornbusch", unpublished manuscript, www.pkarchive.org, 28 July.
Lake, David (1993), "Leadership, Hegemony and the International Economy: Naked Emperor or Tattered Monarch with Potential?", International Studies Quarterly, 37: 459-489.
Wolf, Martin and Lawrence Summers (2011), "Larry Summers and Martin Wolf: Keynote at INET's Bretton Woods Conference 2011", www.youtube.com, 9 April.

1 Kindleberger passed away in 2003. A second modestly revised and expanded edition of The World in Depression was then published, also by the University of California Press, in 1986. The second edition differed mainly by responding to the author's critics and commenting to some subsequent literature. We have chosen to reproduce the 'unvarnished' 1973 Kindleberger, where the key points are made in unadorned fashion.
2 The book was commissioned originally for a series on the economic history of Europe, with each author writing on a different decade. This points to the question of why the title was not, instead, "Europe in Depression." The answer, presumably, is that the author – and his publisher wished to acknowledge that the Depression was not exclusively a European phenomenon and that the linkages between Europe and the US were also critically important.
3 Friedman's great work on the Depression, coauthored with Anna Jacobson Schwartz (1963), was in Kindleberger's view too monocausal, focusing on the role of monetary policy, and too U.S. centric. See also Friedman (1953)
4 Kindleberger (1978). Kindleberger amply acknowledged his intellectual debt to Minsky. But we are not alone if we suggest that Kindleberger's admirably clear presentation of the framework, and the success with which he documented its power by applying it to historical experience, rendered it more impactful in the academy and generally.
5 A sampling of work in economics on international policy coordination inspired by Kindleberger includes Eichengreen (1987) and Hughes Hallet, Mooslechner and Scheurz (2001). Three important statements of the relevant work in international relations are Keohane (1984), Gilpin (1987) and Lake (1993).
6 The European Union was created, in a sense, precisely in order to prevent the reassertion of German hegemony.
7 The point being that the US, in contrast, does possess a central bank willing, under certain circumstances, to acknowledge its responsibility for acting as a lender of last resort. Nothing in fact prevents the Federal Reserve, under current institutional arrangements from, say, purchasing the bonds of distressed Southern European sovereigns. But this would be viewed as peculiar and inappropriate in many quarters. The Fed has a full plate of other problems. And intervening in European bond markets, the argument would go, is properly the responsibility of the leading European monetary authority.

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