Thursday, January 14, 2016

If Capital Controls Start to Emerge Globally, Blame Hélène Rey

The French economist, now living in London, Hélène Rey is being heavily promoted by the establishment.

Last year, she was profiled in The New York Times, The EconomistIMF Financial and Development Review and Die Neue Zuercher Zeitung.

From NYT:
Hélène Rey, a professor at the London Business School, contends that the impact of Fed policies on global markets has become so potent that emerging markets have become largely powerless in terms of coping with the large investment flows that pour into and out of their economies...

[H]er recommendation [is] that policy makers in the United States and abroad put in place regulations that reduce the intensity and speculative fervor of these flows. That could mean capital controls in emerging markets or new rules for investment funds that would punish short-term trading by investors.

“Hélène has pushed the notion that there is a global financial cycle and that countries are exposed to it independently from the exchange rate regime they use,” Olivier Blanchard, the former chief economist of the I.M.F., said in an introduction to a lecture Ms. Rey gave at the fund in 2014. “And she has suggested that the only way to deal with it is through capital controls. This is quite a different position and likely to be quite influential.”

In a widely discussed paper that she presented two years ago at a central bank conference in Jackson Hole, Wyo., Ms. Rey described what she called a global financial cycle whereby financial firms, often using borrowed money, swoop into Malaysian, Brazilian and Turkish markets when rates in the United States are low and swoop out when rates rise — frequently leaving wreckage in their wake...
What Ms. Rey found, however, was that countries like Brazil, Turkey and South Africa were just as exposed to the whipsaw effect of rate-driven capital flows with flexible rates as they were when currencies were pegged to the dollar.
This conclusion suggests that what ails countries like Turkey and Brazil is less their troubled economies (high inflation and lots of debt) and more the volatile investment flows coming into their countries. 

Her solution: more government interference in markets in the form of capital controls:

[She]  questioned what has long been seen as a core principle for emerging economies: that the free flow of capital into and out of these markets is a force for good that should be encouraged.
In a co-authored 2011 paper, she called for capital controls in addition to the current on-going policy fad: price inflation targeting, proving Ludwig von Mises correct once again:
Interventionism cannot be considered as an economic system destined to stay. It is a method for the transformation of capitalism into socialism by a series of successive steps. 


  1. Replies
    1. Oh, look everybody! A government run indoctrination facility success story.

      They're so cute when they mimic their trainers.

      Seriously. Consider changing your username to "The Peak Oil Output Poet" and we'll just refer to you as "P.O.O.P". Fair enough?

    2. Well with brilliant analysis such as yours, who can disagree?

  2. These academics make loyal pets/apologists precisely because they ate useless in the real world. Without the state they would be altar boys without a Mass.

    Plus they're just timid little neerdlings relishing the thought of order one group of stupid people to stomp on another. Just think of Hillary watching the Gaddafi murder.