‘A resilient financial system is critical to a dynamic global economy – the subject of this conference. A well-functioning financial system facilitates productive investment and new business formation and helps new and existing businesses weather the ups and downs of the business cycle.’ Janet Yellen, ‘Financial Stability a Decade after the Onset of the Crisis,’ August 25, 2017
I would add that a well-functioning financial system is critical to long-term social, political and geopolitical stability. Importantly, well-functioning finance would have mechanisms that promote adjustment and self-correction. This is fundamental to market-based systems. I would argue that this is also a basic premise of sound money and finance. Sound finance would neither suppress market volatility nor work to repeal business cycles – but would instead have inherent characteristics that counteract protracted market and economic excess.
For starters, I question whether a so-called ‘resilient financial system’ is necessarily a sound one. As we have witnessed, obtrusive government measures can dictate ‘resilience’ – in terms of extended sanguine backdrops free from volatility, risk aversion and crisis. Yet this type of resilience fosters excesses that can inevitably end with a financial and economic crash.
This post was published at Wall Street Examiner on August 26, 2017.
Follow on Twitter
Recent Comments