Milton Friedman said, “a central bank can control its exchange rate, it can control its interest rates, and it can control its money supply/inflation. But it can’t control all three at the same time.” Maybe we need to add an addendum: Too much emphasis on price stability will not allow a central bank to see asset bubbles coming at them from a mile away. China is doing a good job with inflation and its exchange rate, thanks to capital controls and its peg. But bubble-iscious it has become.
Financial reform bill could be written on a napkin. Anyone with a brain knows it.
1. Taxpayer backed institutions should not be allowed to play it both ways — reap rewards of massive risk-taking and have no downside for failure.
2. Derivatives must move from over-the-counter to exchange-traded [and Credit Default Swaps should be banned outright].
….read more HERE