Monday, September 14, 2009

Central banks . . .


"Leaving a financial crisis is like leaving an awkward social gathering: a good exit is essential. In 1936-37, the Federal Reserve made a colossal mistake in its “exit strategy”. This time round it is crucial that central banks get their timing right."

Central banks must time a ‘good exit’

By Randall Kroszner

Published: August 11 2009

This raises a great question and reveals a great deal about the opportunity cost of centralized, state action. To the extent that the Fed or any other central bank is a representation of the state, then Hayek's knowledge problem prevails. So it is entirely understandable that the FED in 1936-7 did not "exit" either at the right time or in the right way - whatever that is.

So, Kroszner (see here for a great analysis titled the only winning move is not to play) reminds us of the dangers of centralized decision making.

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