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Professor Campbell Harvey responds to student inquiries about the current global financial crisis |
Professor Campbell Harvey provided video responses to Duke MBA students’ questions about the unfolding financial crisis. View Harvey’s responses here. |
Finally, some satisfaction. Geithner on China. In my opinon, the role of China’s artificial exchange rate, which is set by a centrally controlled, command economy and is first and foremost concerned with growth and population stability. As the market was not allowed to set the proper rate at which capital flows between countries, was not the Chinese interest rate therefore kept even lower than that of the U.S.?
This artificial exchange rate mechanism created massive excess pools of capital on a worldwide basis, which enabled the credit binge not just in the U.S. (as always, the U.S. mindset is self absorbed), but in Ireland, Spain and the rest of the developed world. The purchase of agency debt and U.S. Treasuries with these excess pools of capital enabled the ‘great moderation’ and lulled the world economic mindset into a murked up cheap debt haze. Add to that the propensity to judge one’s worth by the level of raw consumption or the size of one’s house and the recipe for endless, consequence free consumption was possible. After all, the heroin user doesn’t normally make his own heroin.
Geitner was commenting on China. The opinion is my own.