Thursday, November 29, 2007

O PREÇO DE MUITO DINHEIRO



How can a crisis of these proportions arise and develop in a very benign macroeconomic environment (unprecedented high growth and low inflation in all major economic blocs, sound monetary and rapidly improving fiscal policies, market deregulation and globalisation, and more)? What lessons can be learned from this?

Diagnoses so far have focused mainly on regulation and market discipline: insufficient transparency and disclosure by banks and their conduits, poor information for investors (calling, inter alia, for more standardized financial products), bad performance by rating agencies – see for example Steve Cecchetti’s recent p ieces in
http://www.voxeu.com/. All this is true, but we should not forget that all this originated in a sector (real estate) that has experienced for well over a decade exponential price rises, record pace credit expansion and extremely low (often negative in real terms) debt costs. This is not a coincidence, and calls into question the conduct of monetary policy.

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