We're Gonna Take On The World Speaking the truth Yeah foreign. We're Gonna Take On The World Oh hey oh hey, welcome back to the Mad core show where I met in your course and this is the show. Uh in literally right now we have uh Jerome pal speaking in the country of Sweden So we're going to listen to that. The Bell opens in 30 minutes.

we have some other things to go over. Uh, but let's listen to Pal because I think there's gonna be some craziness in the market I do have the stream for you right here. Uh, so let's give this a little listen because I think it's going to be very important. uh Jerome Powell The chairman of the FED is on a panel right now with other Central Bank people and this is going to be definitely influential on the market challenges in the 2000s and the 2000 teens in handling financial crisis and deflationary pressures.

And in particular, do these challenges suggest new trade-offs for example, between monetary and fiscal policy or between present macroeconomic outcomes and future Financial stability. So if you look at today superficially, the situation looks like 70s 80s Redux with major Supply shocks and emerging inflation inertia. So this brings us I guess to the most important and the bottom line question given the concerns behind the 1993 form and the challenges in the next few decades. Should we rethink Bank Central Bank Independence and Central Bank mandates that is, other good ideas or even concrete concrete proposals for new reforms? or Central Banking rules.

Okay, so finally, the plan for the session. So we'll spend the next 20 minutes on initial remarks by each panelist. Then we'll have a discussion within the panel around these initial remarks for maybe another 15 minutes, and after that, we'll turn to a round of q a involving the audience. So think about questions and please think about succinct questions rather than statements beforehand and really try to relate them to the three major Uh questions that I outlined.

And in the last five minutes, panelists will be able to make some final remarks. Okay, so now let's go to the initial remarks at most five minutes for for each of you. I'm sure these remarks will span many aspects of the broad panel theme, but by agreement, each panelist will put more emphasis on one of the three main questions that I outlined. So Ken and Mervin will touch on question number one, a Claudian question number two, and day on question three.

So without further, Ado please can rock off. Oh well. First of all, thank you very much to the organizers to the Rex Bank for inviting me to speak. um I Think you've heard so many remarks about Stefan I Can just summarize them by in the Central Banking Community he is regarded as a guru that you don't know the answer some hard question.

He's the person you really can go to and get you know a very deep answer to and uh, we'll hear more about that as things go on. I've been asked to talk about some of the early developments, more of the question one uh, that we've had here. Um, and I think the academic literature uh, on this started uh in the in the 1980s, but of course you know, really, it goes back among practitioners far earlier than that. But I'd say an especially important event was the FED treasury Accord in 1951 that set up the FED to be an independent Central Bank Back in the 1980s, that was a rarity.

Uh, still. uh, the Bundes Bank had achieved that, but most countries had not. My own contribution was to develop a theoretical model that would try to address how it would work, why it would work. and it was an answer to a very abstract question posed by kid.

London press God and Barrow and Gordon about why you might get stuck in high inflation and what you might want to do about it. And my paper looked at various ideas including using an inflation Target appointing people who were had already had a reputation for having a strong anti-inflation commitment on needless to say was very inspired by the great Paul Walker who I was working below Very, very far below. but I was working below Paul Walker at the time when I was working on that and there's been just tremendous amount of literature since taking this to many places. I Think you're all familiar with Europe New Zealand the United Kingdom but I wanted to just really emphasize an area people don't think about as much which are emerging markets and Tobias Adrian really spoke about this.

but I still think most people don't quite understand about the efficacy of the concept about how important it is. I Um, you're uh, European Emerging Markets uh if you looked in 1992 there were 40 countries with inflation over 40 percent and that doesn't even capture things because a lot of them had hyperinflations at the time and the to get out of it. The early solution that was tried in many places for a long time was well the dollar is really good or let's fix our exchange rate against the dollar and that was very good for those of us that want to study Financial crises but on the whole didn't work so well. Um and uh, there was really this period of transformation where some very bold Emerging Market Central Bankers got the idea idea.

You know it worked in advanced countries. let's do it here. and I would I think there are many but I would single out Armenio Fraga and Brazil Guillermo Ortiz and Mexico for example. and I think people forget what they when they were trying this people thought this is ridiculous.

You know you can't be independent in these countries with these weak institutions. and the IMF also over time really played a very uh, positive role here in pushing the idea. By 2015, inflation was actually very low across the world. It's not today, but even in places it seemed unimaginable.

Uh, not just uh. You know the former Soviet republics African countries with inflation under 10 percent? even under uh, five percent? Uh, and indeed, many people have forgotten. You know that Central Bank Independence was ever needed I Invite them to read about Turkey, for example, where the president has fired Central Bankers The way Henry VII changed wives and you can see what's resulted there. I Would say there are many refinements once you have an independent Central Bank of how to do it and literature to which many people in this room have contributed.

but I think the independence of the Central bank is at the absolute Central starting point to this. If you look at many of the these: Emerging Markets They weren't really doing inflation targeting. They aren't really still doing inflation targeting, but they've used this as a device to establish their independence. now.

just to sort of summarize, I would also say there are so many things I I didn't expect and I just single out one. I'm surprised the extent to which central banks in everywhere almost are regarded as honest. Brokers I Mean if you want to know what the data is, you go ask the Central bank and I think that's also part of this. Uh, coming from Independence I think another thing which uh, people in this room are very familiar with, but I think it's been very important is the community of central Bankers helping to support each other, exchanging ideas.

and there's been a huge networking effect in this in providing ideas and also support when the whole Central Banking Community stands behind you a little bit your government lessons and I think we can point at many examples of that and then you know. Certainly recently, the Central Bank Independence has been under attack I Certainly don't think it's an idea you know which is over at all. I I Would actually argue that the introduction of Central Bank Independence has been the most significant positive development in macroeconomic policy since the Second World War. Thank you.

Well Tolston, Thank human. Good afternoon everyone! Tolston's given us five minutes only. So I shall reserve my stories about Stefan and the resurrection of the British banking system in 2009 to conversation over dinner. Um, I Think it is impossible to understand the movement towards Central Bank Independence without seeing it in the context of the great inflation of the 1970s and also the stagflation of the 1980s.

The former was the consequence of I think in large part an intellectual mistake at the time in thinking that there was a long-run trade-off between inflation and unemployment, so that tolerating a somewhat higher rate of inflation would make it possible to sustain a lower level of unemployment. But following the breakdown of Bretton Woods and the link to gold and two large oil price shocks, discretionary monetary policy led to rates of inflation well into double digits and in some cases such as the UK above 20 percent. and as Ken said in many Emerging Markets Eve higher Still, and the stagnation. the stagflation of the 1980s was the painful consequence of efforts to reduce inflation, which led to recessions while inflation still remain relatively High.

Now, an intellectual revolution in macroeconomics undermined the belief in this long-run trade-off between inflation and employment and helped to restore the case for Price stability, which should be made over many decades before arguably most persuasively by Main Alkanes in his tract of monetary Reform, but the attempt to achieve it after the breakdown of Bretton Woods by rigid exchange rate links collapsed in 1992 with the departure from the exchange rate mechanism in Europe of both the UK and Italy and the end of the fixed exchange rate links in Sweden where interest rates had been some of us remember hard to think of this now raised to 500 percent and the same applied to Finland Now Politicians drew two conclusions from the unhappy experience of the 70s and 80s. First, inflation was unpopular If exchange rates were to float therefore than a domestic framework was needed to ensure price stability, and that framework was the adoption of inflation targets, And second, the measures required to eliminate inflation were also deeply unpopular with high rates of unemployment for a while, so politicians found that setting interest rates wasn't actually much fun. So why not give that power to an independent Central Bank with a mandate set by Parliament And those two conclusions: LED Governments around the world to give greater Independence to their central banks. and in most cases, this did go hand in hand with an inflation Target Now, the policy debates at the time in the 1990s are I Think helpful in understanding the challenges to monetary policy today, but there are three important differences between then and now.

First, in the 1990s, the memory of the great inflation of the 1970s was still Vivid. Today, there is almost no one below retirement age who remembers the peak inflation of almost 50 years ago. And until recently, low inflation had come to be taken for granted, both by economists who mistakenly assumed that inflation in the medium term was determined by the inflation Target and by the public who had stopped thinking and talking about inflation. So the constituency for low inflation so widespread in the 1990s has been somewhat eroded.

Secondly, in the 1990s, the popular support for low inflation encourage politicians to Grant Independence to central banks and to support them when it was necessary to raise interest rates. I Think today, governments can see only too clearly the challenge of issuing substantial quantities of government debt when interest rates are rising and central banks are no longer buying their debt. So external pressures on central banks are I think much greater now than in the simpler days of the 1990s and third, when they were introduced and I think this is in some ways the most important point. Inflation targets were not seen as a theory of inflation, but today in the models currently fashionable in Academia and used by central banks, the inflation Target is the variable that closes the model and determines the path of inflation in the medium term.

But the original aim of Inflation Targets was actually to focus and change the way decisions on monetary policy were made. That is why inflation targets were accompanied by measures to increase the transparency and accountability of decisions and decision makers, respectively. Clear explanations of the reasons for decisions on interest rates were to be set out not as a matter of Mystique by Central Bankers Mumbling and saying very little, they were set out clearly in speeches, evidence to parliaments and reports such as the Bank of England's Inflation Report. And although these Innovations remain I Worry that model Builders have tried to use the inflation Target as a theory of what drives inflation, because as a result, any deviation of inflation from Target is assumed to be transitory and policy mistakes followed.

So I conclude really, that an analysis of why many central banks were granted Independence in the 1990s, along with the adoption of inflation targets is clearly relevant to understanding today's challenges. Thank you Foreign, thank you very much! Um to the organizers and I was very honored to be invited here to speak on this panel on the occasion of the farewell of Stefan English Um for me, when I joined the ESRB the European Systemic Risk Board um, he was one of the founding fathers, he was already there and I actually learned a lot from him in terms of the relevance of financial stability for monetary policy, the importance to need to act when it's needed, and the importance of clarity and communication. And I'm saying this not to break the rules because actually, rules are important. Then that's going to be one of my main points here.

But I'm saying this because I think this is all crucially important at the conjuncture as we've just heard: I think in some sense, central banks have enjoyed a capital of inattention or rational in inattention to Pride risks to price and financial stability. We've lived in a period of very low inflation and and moderated risks to fund Financial stability. so the public didn't actually pay much attention to Central bank's core mandates, but current macroeconomic developments not just cyclical, but also structured really challenged price and financial stability. So explaining Financial Central Bank Independence and acting accordingly has become more difficult and also more important.

Central Bank Independence is certainly protected by institutional safeguards. We've just heard that, and that includes fiscal and macro potential policy. Frameworks But I think we also need to be very accountable. We need clear communication to sustain public support to Independence So let me explain these points quickly.

Obviously has been mentioned, inflation and risk to financial stability have been low, so the public in some sense could safely delegate the task of price and financial stability to technocrats and central banks and pay relatively limited attention to the details. Now, this has changed. That's my second point. So we have first of all, inflation, which is well above targets of central banks today, and it's one of the main concerns of the of the general public.

I Looked at the most recent Euro barometer poll and they're 42 percent of the report respondents and I think that's actually on the low side side Rising prices as the most important concern and actually that ranks above issues like energy Supply and the international situation. and I would argue that actually concerned about high levels of prices and perceived inflation is going to remain even if and when inflation rates recede. So that's the first challenge. The Second Challenge is that during periods of low interest rates, vulnerabilities in the financial system have built up in Germany To give an example with a two decades of declining corporate insolvencies, very low credit risk, strong support to the real economy and indirectly also to the financial system through fiscal and monetary policy, and that we think leads to an underestimation of macroeconomic risk um going forward and also the expectation of further policy support.

So higher vulnerabilities in the financial system is the second vulnerability, the third: we have high levels of debt and that creates tensions between fiscal and monetary policy and that's my third point. It's important but also more difficult to actually explain the role of Central Bank Independence and to act accordingly. So one tension one conflict of interest that can arise in the short term is there can that there can be pressure on central banks to keep interest rates too long for for longer to avoid risks to financial stability. but I think this even makes increases vulnerabilities in the financial system.

So if we delay the necessary monitor monetary adjustment that can lead to the build-up of further vulnerabilities. And I think if we look back to the global financial crisis, we have seen how monetary policy can actually come up be risk to come under fiscal or financial dominance. So at the time of the crisis, central banks provided liquidity to stressed financial institutions and often to institutions with potential solvency problems. Capital buffers in the financial sector were insufficient and fiscal funds were ultimately needed to cover losses.

What are the lessons from this episode? Well, we need sufficient Capital buffers under private sector. gaps in the institutional framework needed to be closed, so resolution Frameworks have been certainly high on the agenda and Independence and credibility of Central Bank Also may come under threat of their insufficient fiscal backstops. Now a lot has happened. In the meantime, we have better fiscal and macro Prudential Frameworks and that help us to prevent Financial or fiscal or financial dominance At least Frameworks are actually complementary to the Frameworks for Central Bank Independence that we've just heard about.

Obviously, there's a lot of institutional safeguards to Central Bank Independence in Europe Primary Law assigns a strong role to Central Bank Independence and the legal basis and the Euro system is even stronger than than in Germany. So changing the treaty would require unanimity versus a simple majority when it comes to changing the bonus bank law in Germany. Maybe just as an interesting side effect. A side remark: there's interesting historical research showing how Independence was made into the Um into the legislation in in Germany and when Independence was to start cast in this in the 40s and 50s, there was actually stronger support for independence by the by the U.S authorities than by the German authorities office is different when it comes to financial stability.

The Frameworks the macro Prudential Frameworks that we have have to consider that the time Horizon for financial stability risks is is different than for monetary policy Financial Cycles last longer than business Cycles The policy objectives are different. It's more difficult even to quantify Financial stability then this is the case for Price stability and we have different types of instruments, but still, we need also Independence for financial stability policies as we've also heard from to BS to avoid inaction bias and to avoid that weak authorities come under under fiscal pressure. The last point I would like to make is also something that colleagues have mentioned legal Frameworks are not sufficient. We have to communicate and to explain Independence and this can actually be quite a balancing act.

So we have on the one hand the technical experts where which to which we have to explain our policy cycle, where we evaluate our policies, the intended and unintended consequence of policy choices. but these policy evaluations are rather Technical and tuned to an expert audience. But at the same time we need to convince the general public that the Central Bank acts in its best interest and protects the public. Good stability.

So we need a translation from the language spoken by the technocrats to the language spoken by the general public. but we don't have established dictionaries for that. So one tool that the Bundest Bank is using is actually a small video. It's like a comic strip explaining why Financial stability is not boring and if you get the chance, take a look at it and give us give us feedback and so I think we we need this dialogue with the public in particular because we live in a time of structural change and we need to understand what's going on around us and so we need a lot of communication channels also to the to the general public.

Thank you very much Thank the Lord We're done with that. Let's bring it home pal. Let's show these people what the USA the A is all about. Let's go Pal.

It's a pleasure and an honor to be here today. I Guess I'd like to start by by thanking you Stefan for your friendship for being a great colleague. You are an absolutely essential person in our world and you'll be. You'll be badly missed.

Um, I'm going to use my comments focusing on the U.S context and I'll address three main points. First, the Federal Reserve's Monetary Policy Independence is an important and broadly supported institutional Arrangement that has served the American public well. Second, the FED must continuously earn that independence by using our tools to achieve our assigned goals of Maximum employment and price stability, and by providing transparency to facilitate understanding and effective oversight by the public and their elected representatives in Congress. Third, we should stick to our knitting and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities.

So starting with the first point, as as Canon and others have pointed out on the first point, the case for monetary policy Independence lies in the benefits of insulating monetary policy decisions from short-term political considerations. Price stability is the Bedrock of a healthy economy and provides the public with immeasurable benefits over time. but restoring price stability when inflation is high can require measures that are not popular in the short term. As we raise interest rates to slow the economy, the absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors.

And I believe that the benefits of independent monetary policy in the United, States and and more broadly around the world are well understood and broadly accepted. However, in a well-functioning democracy, important public policy decisions should be made in almost all cases by the elected branches of government. Grants of Independence to agencies like ours should be exceedingly rare; explicit, tightly circumscribed, and limited to those issues that clearly warrant protection from short-term political considerations. With Independence comes the responsibility to provide the transparency that enables effective oversight.

In our case by Congress, which in turn supports the Fed's Democratic legitimacy. and at the FED, we treat this as an active, not a passive responsibility. Over the past several decades, we've steadily broadened our efforts to provide meaningful transparency about the basis for in the consequences of the decisions that we make in service. To the American people, we are tightly focused on achieving our statutory mandate and on providing useful and appropriate transparency.

On the third point, it is essential that we stick to our statutory goals and authorities and that we resist the temptation to broaden our scope to address other important social issues of the day, taking on new goals. However, worthy, without a clear statutory mandate would undermine the case for our independence in the era in the area of Bank regulation. As Tobias mentioned, the FED has a degree of Independence as do the other Federal Bank regulators. Independence in this area helps ensure that the public can be confident that our supervisory decisions are not influenced by political considerations.

and today some analysts ask whether incorporating into bank supervision the perceived risks associated with climate change is appropriate wise and consistent with our existing mandates. Addressing climate change change seems likely to require policies that would have significant distributional and other effects on companies. on Industries on regions and on Nations decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public Public's will as expressed through elections At the same time, In my view, the FED does have a narrow but important responsibilities regarding climate-related related Financial risks. These responsibilities are tightly linked to our responsibilities for Bank supervision.

The public reasonably expects supervisors to require their material risks, including the financial risks of climate change, but without explicit Congressional legislation. The Market's open for us to use and I killed everyone's ears. For example, to promote a Greener economy or to achieve other climate-based goals. We are not and we will not be a climate policy maker.

Thank you, Not a policy mate. Green? Excellent. Thank you all four for this. Lucid remarks.

Um, now Um, you'll have a chance to agree or disagree with anything the other panelists just said. or you can also get into one of our main questions that you didn't cover in your initial remarks, especially if you have views on desirable reforms of Central Bank Independence and mandates Marvin What? I Just want to say how strongly I agree with what Jay Powell just said about Mandates Uh, independence from politicians is a great responsibility and it cannot be misused by trying to creep into areas which have not been explicitly delegated by the appropriate political process. And the way I think about it is is this: that nobody would ever create a central bank to prevent pandemics. Nobody would ever create a central bank to combat climate change.

They would create a central bank to try to ensure price stability. And they would create a Central Bank in order to try to maintain stability of the financial system. So I Think: if you're going to have Central Bank Independence you should always remember the maxim which I think is crucial for any agency which is only do what only you can do and there are plenty of other people who can take measures to combat climate change. And I worry that people in the great enthusiasm for doing good are actually putting at risk Central Bank Independence Others Again, well, uh, not necessarily to the three questions, but just expounding slightly I think particularly when interest rates tenants.

Kenneth The challenges of Independence was the idea. We don't need it for uh, stabilization policy anymore that's very popular among a significant group of academics. In fact, if you look at a poll of the American economic Association and compare what they said in 2000 where that was not considered to be a good idea by most, the considerable majority did think it was a good idea by 2021 and no one introduced Torsten but he's made giant contributions and political economy along with his co-author Guido Tabellini also Lars Fenson who's here and the light Alberto Alicena and this just seems to have been forgotten that I will see I'll pick on and Paul Krugman draw an is an Llm curve and he says, well, you could shift the Is curve. that's fiscal policy or you could shift the LM curve.

You can kind of do one or the other. well. I mean Fifth of all, this is actually the sum of tens of thousands of different policies which are hardwired politically, and the ID fiscal policy is absolutely necessary in many cases. And of course, when a catastrophe, a pandemic, a financial crisis has, it's less political, but in most cases, the independence of the Central Bank gives it this ability to approach things more technocratically and fairly quickly.

That where fiscal policy needs time to sort out the political dimensions of things reflection that I have when I listen to the panel here and also looking at the questions how how essential Bank Independence has evolved over time. I Think it's certainly important that we also see it as a generational issue. So to what extent does the Young Generation I thought I think that was very interesting What what you said like in the 90s there was the memory of higher inflation and I also alluded to the discussion of Um the situation in Germany and the in the 50s where actually the politicians were seemed to be tempted when you read the account of the historians to have a little bit less independent central banks. but the public was still so much aware of the of the of the of the higher inflation that they pushed for.

for that the public opinion pushed towards more and more Independence together with the with the U.S authorities at the time and I wonder whether today we're reaching the the younger population and explain to them why Central Bank Independence is so important? Um, and I think that's also part of our Outreach that we have to to do. Okay, so I'll admit to not really answering the third question. um so. but but I'll take a shot at now if I guess the eyes looking strong and opened up three notches.

Exciting financial crisis or the pandemic and the responses to them. Does it Does it suggest that there are problems with the Mandate and unforeseen tensions between Um either you know Financial stability and monetary policy and that sort of thing. and I guess I Would uh, take the position that that's that would not be my takeaway at all. I think that um I think what it happened in both crises is that Central Bankers use their tools pretty innovatively to deal with exceptionally.

You know unforeseen and difficult circumstances. I think the main takeaway from the global financial crisis was the need to build far more resilient core of the financial system. and we did that. The banks did that.

We did that all over the world. People did that, and I think that Financial system now is now substantially more resilient and more strong at its core. I Think it held up better in in the pandemic. As a result, the pandemic was was a different thing.

It was a you know, it called for a whole of government response from a medical standpoint point, and it called for use of fiscal policy and monetary policy tools in unprecedented ways. You know there had been a concern in the United States that Dodd-Frank had two limited the Fed's authority under Section 133 to do facilities in The Lending The the new system actually worked quite well. What it did was it required the treasuries, the elected part of the government's approval for these emergency lending facilities and that actually worked very well and that that's actually an appropriate thing because these are Extraordinary Measures We only have the authority during emergencies and to have the elected government approving it. It was a very constructive process between us and treasury.

So I guess to take a step back. I Uh I I Think that the tools that we that we have work I think there's nothing wrong with our mandates we don't I don't see any anything about the laws that govern us or provide our mandates that needs to be changed and it seems to have worked pretty well in these two very difficult circumstances. Yeah, that's interesting. Um, yet there is a somehow at least to some of us a difference in the reaction in the in the 90s and the reactions now.

So in the in the 90s the Public Enemy Number One had been inflation as Mervin and Ken had discussed and you know there was an outcome of decision making that it wasn't useful. I was subject to this credibility problems and with what we tried to do then was to construct a more robust framework in terms of institutional reform that would produce better decisions that would keep inflation low. Now the Public Enemy Number One arguably over the next 25 30 years were with these repeated financial crisis or risks of financial crisis and it's true that there was of course much more regulation of the financial sector but not to the same extent you know trying to address by institutional measures the the underlying decisions in in this Arena by Banks Yes but not by not necessarily by policy makers. So is there a case Mervin You have strong thoughts on who should be responsible for financial stability and macro Prudential policies is do do the events that we went through during those dramatic that dramatic era of the great Financial crisis made you rethink those those issues Well I Think the answer is yes because when the bank of England was made independent in 1997.

actually both the then Governor Eddie George and myself were quite content despite some press speculation to the country that bank regulation would go to a separate body. But the reason was that at that point supervision of banks was really all about depositor protection. It was about elimination of insider trading fraud Etc It wasn't about his a historical Bank Run and about inadequate Prudential regulation. And in really in the five years before the financial crisis, that's when you saw the leverage of the banking system increase very rapidly so that it did become very fragile.

and I think after that I was very struck that when the to be Prime Minister David Cameron and George Osborne the chancellor came to see me. Their argument for putting it back. Regulation back in the Bank of England was essentially that the only institution that people will trust is the central bank. Therefore you need to take some of this back.

Now you can argue I think whether some of the details of Regulation needs to be inside or outside the central bank. That's a less important thing, but the principles of ensuring as Jay said that the banking system was sound I think the ones that central banks have to be involved in. but deep down it Tim seems to me the big difference between the way policy was set and the certainly the 80s and early 90s. and today is this business of recognizing that the quid pro quo as Central Bank Independence is communication explanation and Clarity of that communication the Great American Economist Bob Solo once said that an economist needs three qualities: faith, hope, and Clarity and the greatest of these is Clarity excellent person.

Can I just say something in response to your comment I mean inflation's back. So yes, if you'd asked that question in 2021 maybe you know people said well, financial crisis. but I think you need a a framework that as Jay was saying is stable over the full cycle of things that are happening and doesn't get you know it gets tuned. but uh, and also, let's look at the rest of the world please I think if we're looking at developing economies Emerging Markets which are also struggling to find Frameworks that I wouldn't tell the IMF to change what it's doing in terms of Central Bank Independence All right.

So maybe we'll go to the section when the public is involved a Q A sessions. So um, if you want to say something, please raise your hand If you want to post a question. If you do get the mic, please start by saying your name. Please be succinct and please try to relate to the overall theme of the uh, okay, Rich Reporters please.

Yeah, we're coming through Richard Porter's London Business School and European Systemic Risk Board where I have learned over several years a great deal from Stefan English No more of that now, but maybe later. Um, I'm not totally convinced that we now have a resilient system. Mark Carney Said that in 2017 as his final statement from the Financial Stability Board. But then the banks.

Yes, But we found in early 2020 that that wasn't true of the non-banks and particular the money Market funds, and the central banks had to step in. Central banks don't like to do that quite rightly. they don't like to have to act as market makers of Last Resort and that may be a compromise of the Mandate. So the questions that I would put to the panel as we've seen nominal as we've seen very recently, the rise in nominal rates is exposing Financial fragilities in the system.

They came from the search for yield, whatever you want to call it and we saw an extreme example of that in the United Kingdom in September of this past year. Now, in those circumstances, um, should Financial stability be explicitly in the Mandate Should we be recognizing reality what central banks actually do in practice, would that help avoid Financial dominance? Uh, if it were in the mandate, given the huge costs of financial crises, is financial dominance in a sense inevitable, Recognize that, recognize reality and put Financial stability in the Mandate Why not take a stab on that? I Mean since it is in the Mandate Uh, most central banks now and I think it needs to be linked explicitly to the instruments of central banks. This was the problem before and the obvious instrument is whether you call it lender of Last Resort to Banks or the equivalent to the non-bank sector. And I think that Central Banking Community is very focused on the question of defining the circumstances and the nature of institutions that happen to be non-banks that would Merit an intervention and I think that the only way to handle this is to have a framework which is set out X ante which actually tries to identify clearly the circumstances and the institutions that would Merit lending from the central bank, but also ensures that the scale of that intervention is also under the control of the Central Bank and not something which the actors themselves in the financial system can expand to almost any number simply by the actions that they take.

It's ensuring that there is enough collateral against which to lend by the central bank. now. I Think the Central Banking Community is well aware of. these problems doesn't make them easy.

It doesn't mean that you can do It in a week, But my guess is yes, you're right Richard that there will be an expansion of the Mandate and that it's there in principle. But it needs to be made much more concrete by saying, what are the institutions? What are the circumstances? Whether it's maturity mismatch or something else that would justify an intervention and to have sufficient regulation on that degree of maturity mismatch xante to limit the size of the intervention? Claudia Yeah, no. I I Agree that that to some extent of the framework for central banks to be involved in macro Venture policy is well defined. So the Bundesbank, according to the German Financial stability law has a clear mandate in that regard.

Um, it's It's a joint mandate with the supervisory Authority and with the Ministry of Finance Because as we all know, there's a lot of distributional implications that macroponential policy decisions can can have. so it's not us alone. And I think Also, the ECB has clarified in its strategy review how monetary policy and financial stability interact. Um, so um, the The one point that I would like to make In addition, is that um, we also do have Frameworks for evaluation of policies and whether we've done enough.

So the the FSB The Financial Stability Board started this big big project in 2017 and looked at the reforms that have been implemented. found no major side effects, found that a lot has been achieved, but there's still also gaps when it comes to resolution reform. So I think also for the the areas that you mentioned the non-bank financial intermediation space, we clearly have to implement policies and and and look at the resilience and in that part. So I fully agree.

We can never say that the job is done and we can all lay back. That's what we're there for Yeah Jay Jay Please just add it in in the same spirit. I Think that the what the Pandemic revealed was weaknesses in the in the non-bank financial sector. much as the global financial crisis revealed those weaknesses in the in the in the big banks, in the in the large utilities Financial Market utilities and so there's been as as Claudia was saying there's an Uh and Mervin was saying there's a lot of effort going into and has been in.

What do you do about money market funds? What do you do about the treasury market? These things are much I think the first order answers need to be changes to the structure to of these institutions to make them stronger, more resilient on their own. Um I would say expanding the provision of Central Bank liquidity is is is not the not the desired response it really is to strengthen these institutions. Our Capital markets are quite vibrant and very different from in what they do from uh you know from what the banks do and I would I wouldn't want to see the kind of Prudential regulation that goes along along with with liquidity provision I I don't think it would be. It wouldn't be great to extend that too much into the into the non-bank financial sector I'd rather work on structural reforms which is which is kind of what we've been doing.

Thank you! You mentioned that you mean did graduate students to and Graduate Studies together with with the Stefan I can add that I actually made undergraduate student studies together with Stefan So I'm even older. But a question of Independence Uh, it seems that you have mainly been discussing Central Bank independence from let's call it political pressure and of course by partisan pressure would be even worse. But there's something more subtle about the independence issue which I think we can discuss in Sweden right now. Um, I'm personally interested in that I work in the Finance Minister many years ago, but I was also on the general Board of direct Bank Rick's bank's not the board of directors, but the general board before in the old evil days before independence.

Anyway, in Sweden we have four institutions: the Rick's Bank, the Financial Supervisory Authority, the Debt office, and of course the Minister of Finance And they often work with similar issues obviously, and they often have to cooperate. So the question here is: how independent can the Central Bank be in reality, to what extent must the Central Bank discuss? Compromise? Lean against the wind or with the wind and be politically agile at the same time as it is formally independent. Maybe it sounds like a stupid question, but I think Actually, this is almost as important as the let's call it the big issue of political Independence I'm I'd like to hear sort of your experiences from this: how independent can the central Bank really be Uh, can I start by saying I think we have to distinguish between monetary policy and dependence were the case I think is very strong from all the other activities of the central bank. So as a regulator, uh, the United States feds very powerful, but there are many other Regulators it deals with and uh, this I think you're the same is true in most countries so that it's it's very different conceptually and I think all Regulators we'd like to be independent from over political influence and being bought off.

or you know, uh, even if it's only psychically held hostage by those that it regulates. But I think that's if you the Central Bank in general and looking at all its functions, it clearly has to coordinate with other agencies. It clearly has to be subordinate to political uh policy as we had in the first session here. So I can speak from from my experience, which was that between 1997 when the bank of England was made independent and 2013 when I left, there wasn't a single episode where the elected politicians put pressure on the bank to adopt one interest rate policy or change rather than any other.

Whereas as Jay talked about the facilities that were put put in place in the U.S Under the new regime which was meant in some sense to give more control to elected politicians, we in the Bank of England in 2010 really introduced a compact between the treasury uh, on the chancellor on the one hand and the Bank of England on the other which said that any lender of Last Resort operation had to be approved by the treasury. That seems to me market breaking down appropriate marketing companies why do you want to do it And in very few cases could I imagine that the treasury would say if the Central Bank feels that A lender of Last Resort operation is appropriate to prevent some collapse, the idea that the treasurer is going to say you can't do it I think is not likely to be to be true, but since taxpayers money is at risk, it's perfectly reasonable for the treasury to have an input on it. There was never any conflict between these two different approaches in the different areas of policy. so I think The important thing is for it to be quite clear what that policy responsibility is, whether it's in the US with changes in legislation or the compact agreed between the bank and the treasury.

in the UK, it's quite clear what the lines of responsibility are and who has to be consulted. That's the important thing. That's what prevents I think things going very wrong. It's where the same.

It's where different institutions or players all feel that they are the people responsible for a particular policy, that you get difficulties yeah, or to express it differently. and perhaps more simply, you know it's a big difference between uh, taking the decision in The Liberation with others or taking it after deliberation with others. Yeah, yeah, and that's the responsibility point, right? Yes, please. Thank you very much for the panel for the Bundespan.

Let me put it like this: I think it was already set by Ken rockef I Think inflation is back Now we are more or less in my interpretation, still in the midst of a storm and the storm is not over. so we have to do our job. Our main mandate. This is our role.

During the last 10 12 years we were the most welcome partners of the politicians. Because we in our independent role we did everything to fought against all the financial crisis and did what we did. But this came with a price and now in the next years the politicians have to learn that monetary policy is coming with the price. So maybe some of us they have to announce that there are maybe losses or not the profits we came up in the past.

What is your opinion about that? is that influencing the way we we are being perceived in the future about our independency? He wants to take that on? Well, I'm I'll take it only it related to something that I said which is at the pressures from politicians will be greater and more complex today than they were in the 1990s. And you're absolutely right. But I don't think it's an issue about the Mandate of the central bank that is unchanged. It's that some people in positions of political responsibility will learn that life can be difficult.

But I don't really see that there is a great wish anywhere to change the formal independence of central banks, but politicians will always want other people to do things that would benefit their own short-run interests. That's where central banks will remain solid and maintain their independence in respect of monetary policy. and they have every incentive to do so in my view, someone else. no.

Well, I I I'll add briefly. I I mean clearly. Uh, there are many cases where given the Central Bank's Independence politicians will look to the Central Bank of urban planning to do something they should do, but they don't want to do or, uh, political interests. Uh, will say want something to do with inequality or something to do with the environment that they're not getting through uh, the political system and they'll view the Central Bank perhaps as an end around being able to implement it.

But of course you know at the end of the day the central bank can't take political decisions consistently and maintain its independence. There deep crises where the Central Bank just has to act. but I think in that case you know it again is looking to the political system to back it up. If you go to developing economies, the normal you know rhythm of things is the Central Bank moves but then the uh treasury kind of takes over everything it did and everybody knows that that's coming and so you know works that way because the central bank can move so quickly.

but um, you know it. It needs to be very wary of uh taking political decisions foreign outside the outside. The topic of the panel. but since can you are on the on the panel I'll ask you anyway.

Uh, you wrote a a nice little book called The Curse of cash and in this environment cache is disappearing. So what's your advice? Well isn't it wonderful that the people who organize this the event had a panel just before us about this? but uh no. I think One of the things that's been very naive about the I will call them crypto evangelists is that they can somehow do something better and have an end around. And in fact if you look at the history of money which is probably what I should have called my book um and you you look look at the private sector always invents everything but for many reasons.

the governments eventually regulate it and even sometimes appropriated. And I think you know the that? That's what we're seeing. uh, going forward and the digital space you need. rules of the road and I was going to bring it up earlier.

but I I mean I have to imagine FTX uh that was kind of a success for the regulatory Community it it didn't do anything. it's the 32 billion dollar dollars at the heart of the crypto system just had had no effect. and I I think it. You know it shows how you you need, but you need some regulatory structure to provide guard rails.

and uh, the Central vaccine to do that. But anyway, I've learned from you over the years on this issue, so thank you for asking that question since we're aspiring out of control here with questions about anything we should try to wrap up. So all good things must come to an end. And I'm not going to try to to summarize what is what has been said, but we I'd like to end with some final remarks.

Um, but really, just one minute for each of you to summarize for the audience which is the most important thing that we should take away from the panel. If you had to expound on one, which would that be uh, who wants to take that first? Okay, so I'll just conclude by saying that for us, Central Bank Independence is a matter of Statute it's not in our constitution. it's just an Institutional Arrangement that that has served the public well. nothing more, nothing less.

And as long as it does serve the public well over time, then I think it's safe and I think it's safe now. But that means we've got to be committed to achieving our goals and to sticking to this precious Grant of Independence to keep it. We need to deserve it. And that means stick to that work and don't don't look for broader things where it was discussed at the first panel.

Really, we shouldn't be getting ahead of where the public is if there's no specific mandate. Uh, and in in the case of the U.S that's a particularly Salient point today. Claudia Yeah, no, it's your bottom line. I I Fully agree with what Jay just said.

and and that's also again when you look at the German history. So sticking to the to the Mandate and deliver I mean this is what's what's building trust. and I think when it comes to financial stability, we actually had a at a critical juncture because the system has not been fully tested. so we have to make sure that we also deliver on both of our our mandate's price and and financial stability.

Marvin All good things do not have to come to an end and Central Bank Independence is one of them. And I think the point that comes up for me comes out of all this is you can have a debate about whether interest rates should go up and if so, by how much or go down a bit. that's to do with the actual decision that's being made in a moment, but institutional Arrangements matter. They really matter and that's why Central Bank Independence I suspect will live longer than many good ideas.

I Also believe Central Bank Independents will go on for many decades to come. It's hard to know forever and I I would just again argue as I said in my remarks that it's really been maybe the most uh, successful policy Innovation post-world War II uh and uh continues to be okay. let's stop at that and take early coffee. Thank you with a big Applause to the panel.

Great. All righty. Now that that is over, we can pay attention to the actual Market You know this thing. the Old stonk Market uh popped dropped popped a little lower dropping very neutral day thus far here I'll throw Apple up here.

it's been having a lot of influence Apple looking a little bit weak. uh, very neutral. Very. oh that's looking a little bit weak.

All right, we'll throw up I don't know I saw some people talking about Mullen what's Mullen doing today Mullen Neutral slightly green. it popped huge one minute range bar but then thus far as getting smacked and not much going on there uh AMC nape are up 1.5 Jamie's up one percent. Uh, rum is up another 4.7 percent. Shout out to the recent Rumble push um Oxy's down slightly Tesla's down 1.3 percent Microsoft's up apples down.

Uh, the spies break even the cues are slightly green. the Russell's slightly green. Uh, as of now, this is chop. Uh uh.

I haven't taken any trades today. Um, as I kind of explained yesterday I try to wait till 10 a.m but uh, even today, no trades worthwhile to take. It's just been a a chop day there I see no signals I'm looking at these big players that I'm kind of using as Market internals such as: Apple Microsoft Tesla Amazon Lots of chop, lots of chop, no clear direction. we're at important levels of support and resistance, and uh, just no one's really showing any inordinate amount of I guess pressure in the buy or the sell side.

This is a great time to just wait. wait wait wait wait wait wait wait for the trades to come to you. it might. Uh dude, it's just so neutral.

So incredibly neutral. Patience, Patience, patience, patience. I'm not seeing a strong bias in one way or the other. So I hope if you already have a trade on I hope you're making money with it.

But for me and my style of it, uh, this is just literally the time to wait. Just the time to wait. And some days be like that. other days are rippity, skippity doo dah and there's a lot happening.

but uh, as of now I guess I'll set up some alerts for breakouts and breakdowns, but this is just an oddly boring conference. Also, if you ask me. Uh, so for those of you who are paying attention to the Fed rate hikes and all that, there's a good chance. Uh, as of now, there's a 78 chance that the next Fed rate hike according to the bonds Market 78 chance of a 0.25 bips increase or 25 bips 0.25 but we will not know that until early.

Feb So we're a couple weeks out from that one. couple weeks out from that one waiting on this. waiting on this just neutral, neutral, neutral, neutral waiting, waiting waiting waiting. China The Bulls as of now are trying to get something going I don't know if they will like, uh, a weak bullish push right now Rum is going Tesla's showing some weakness.

Um, for those of you who maybe didn't catch the story I Guess with the drop in Tesla vehicle prices in China there was a lot of new orders coming in, so a little bit of positivity there. Uh, Apple sold off trying to recover if Apple can push 130, that becomes interesting watching. Uh uh. moderning.

Just wait. Choppity Choppity Choppity Choppity. No signals, just waiting. Look at the option chain for the next week on AMC and Gme they're expecting a big push next week I Feel like that's commonly said and it just really doesn't lead to much.

ever. I Think there's just too much? I mean I don't think there is. There is too much hopium in copium in the community. Way too much opium.

Way too much copium waiting for the entry. I'm curious I Like this: Lower high. Uh, maybe we could get a a triple top Breakout Maybe Not highest confidence by any means. So I'm if I play this.

I'm doing it in like a size down fashion. Like this is not like anywhere close to a five star setup. It was the day. Started off a little neutral leaning bullish.

then it was very quickly neutral leaning bearish and I was trying to fight back. Um, it's just. it's more neutral than anything else. waiting, waiting, waiting.

That's the name of the game. The name of the game today is wait for that trade to come to you. All righty? Alrighty alrighty alrighty. Maybe Maybe Is this gonna push little baby? Amount of momentum being built up? Oh brother, what are we doing? I guess I'll put a sitting order just in case.

what's it doing here? Order Rejected. Uh, why? Oh yeah, that makes sense of why. I Can't do that. Never mind.

can't put a sitting order that high. Just waiting, just waiting, just waiting. I Feel like today, my sinuses or not as good as they should be. Just waiting.

Patience, patience, patience. Wait for the trade. Wait for the trade. Wait for the trade.

Nothing is happening thus far. They as boring as that speech was from the whatever organization that was in Sweden is as boring as the market is right now. Is it gonna get going? Is it gonna get going? Is it gonna get going? Order place, Order cancels, order Kansas one long I Want to place an Oco order? No I want to place in Oso or starts order. How could I pull that? Hmm.

no. order, start, order I need to figure out how to do that. Oh attach Oso There we go I wonder if this is gonna like things up? Attach an Oso How do you attach an Oso to an existing one? That's going to get complicated? Uh, starting to pick up, starting to pick up a little bit. Are we gonna get anywhere with it? Maybe maybe cup and handle cup handle high or low Pushing order filled, order filled.

all right. Uh, nailed that. So right there. I Bought two at 25.25 and I got out of one at 29.

So I went long on Two And Already locked in one for a hundred and eighty three dollars and then the other one is currently a random uh, a runner. So right here. bought two at three, nine, two, five point, two five sold one at three, Nine Point or Three Nine Two nine. So already locked in a runner on that One So uh, I have 250 open at this position and already locked in.

So as you can see, it happened very, very extraordinarily quickly. Uh, but sometimes that is exactly how it is. Uh, so we'll see how this one plays out. That was incred incredibly quickly.

incredibly quickly. Um, so I'm gonna set up my risk, but quick one out of there just to try to make back a little bit of the money that I lost yesterday. Once again, locked in 183 and unrealized up 300 right now. So let's switch it back to this.

just trying to show you what I'm doing. Uh, we got this pop watching 390 on the Spy So I'm playing it in the S P 500 just doing a little bit more leverage. Um, so de-risking the situation by taking one of them off because why would I say no to a hundred and eighty dollars when it happens that quickly? Um, so I'm going to set up my risk right now and my wrist. What do I want to risk? All right.

I'm gonna set up my risk all right. I have my risk set and I'm ready to let this rock. Very much ready to let this rock. All right.

Let me just update this here in logos. Uh. Foreign. Bed Bath Doing something crazy today.

Somehow Bed Bath is up 31. Don't they have earnings? All right? Well, let's hope that this push happens. Cup handle higher lows. Uh, here's the cup.

Here's the handle. The handle broke out. a re-test of the breakout zone is by no means abnormal. So I'm watching 389 and I'm also just looking for a continuation of the trend that we've seen thus far today.

which, uh, let's extend that to the right. and then let's just make that yellow so a little bit more visible. So watching higher, low, high or low looking at the cup and handle. This is such a classic technical situation.

Let me take a look at some of the other things I care about All right I Like that I like that we are at a key level. The only thing I don't like right now is the Spy 38950 to 390 is key resistant. So obviously I'm inherently betting on us breaking through said resistance. Uh, but let's see how it ends up panning out.

Let's see how this ends up panning out. We're in the account rebuild mode, so I'm going to be very, very specific with moving up my risk of my trailing stop loss at every whatever 3, 5, 10, 15 minute interval that's reasonable. I will continue to move my risk up behind it because I don't want to lose money. Uh, BBI is ripping kind of out of nowhere 180 to two I wouldn't play it I mean Bbby any pump I actually think should most likely be shorted Bbby? like just listening to the company um, and their own commentary on it is pretty much trash I Feel like ass? All right, we have one.

Runner How's the runner looking? the runners cooking? Checking in on the runner right now? Up: 437 up 450 in at 392 5.25 Uh, Kind of an interesting level to me is 3945 right about here? Uh, big resistance I'll be curious first of all, if it could even get up to it. and if it does get up to it, will it be able to break 3945 if you're watching the Futures Market Um, definitely of interest to me as of now. I'm risking 612 I've locked in 183 as this continues to push and obviously hopefully it does uh as soon as reasonable. I'll move my risk up to break even as soon as reasonable.

but we'll we'll give it a little second to cook. We'll give it a little second to cook. We're cooking. You can't can't bake a cake that quickly.

Sometimes you just have to let these things cook. Let's hope that this breakout holds. Let's hope that the breakout holds. Uh, where we need to wash this a little bit more closely.

You know, watch it a little bit more closely. I Do like the trend of things right now. Of course there's healthy pullbacks. The tough thing is defining if it's a healthy pullback versus an actual Trend change.

As of now, this looks like a healthy pullback if anything very much does. actually that pushed to 35 Jesus Very evidently going to get a pullback off of that. Very evidently going to get a pullback off of that comcool collected I Have one contract long I'm watching this trend line right here that we're at. Um.

I'm a little I'm essentially a break even at this point. so we'll see. Let's let it cook. You can't can't make a cake that quick folks.

Sometimes you have to let things bake in the oven for a bit. bake in the oven for just a bit. Damn. what are we doing? We need patience, Patience, patience, patience.

Hopefully patients will pay. It is still kind of neutral back to break even on my entry on the main one. Gave myself a little bit of buffer that little quick scalp train. All right, let's get popping from here.

Let's get popping from here. All right, Come on, no hold this line. hold the trend line. Are we gonna have a failed cup and handle? Uh oh uh oh SpaghettiOs uh oh SpaghettiOs Come on, let's see if we can pull that U-turn Rumble Looking great rum up another 6.5 run.