When the Wall Street Journal, the Financial Times and the New York Times agree on the merits of a policy, readers will understandably be confused.
At the annual rendezvous of central bankers in Jackson Hole, Wyoming this past weekend, the IMF's new managing director Christine Lagarde asserted that Europe's banks should be recapitalized. This, she claimed, would make the banks "safer" and improve the chances for European growth.
On August 29th, I wrote that Ms. Lagarde had misdiagnosed Europe's banking problems and is confused. Indeed, her prescription would be deflationary and put more stress on Europe's fragile economies.
On August 30th, I criticized the Wall Street Journal's editorial which praised Ms. Lagarde's recapitalization ideas. Strike one.
On August 31st, I commented on the F.T.'s effusive endorsement of Ms. Lagarde's recapitalization proposals. Strike two.
With the New York Times, we have strike three. Ms. Lagarde's recapitalization ideas are out.
Recapitalizing banks in the middle of economic troubles is a dangerous and unwise course. For more on this issue, I recommend Prof. Tim Congdon's book Money in a Free Society which Encounter Books will release in October. Prof. Congdon's book is profound and I am pleased that its dust jacket will carry my endorsement:
Prof. Tim Congdon, one of the world’s most eminent monetarists, employs his multiple talents and experience – as a first-rate scholar, market economist and financial journalist – to unravel the mysteries of modern money and banking systems. His most careful and anxious attention to the arguments proffered in the great canonical works and debates of the past is unmatched. This, coupled with his mastery of the tricky intricacies of modern money, will ensure that readers of "Money in a Free Society" are richly rewarded. Among other things, they will learn that Nobelist Paul Krugman and the Chairman of the Federal Reserve Ben S. Bernanke have a tenuous grasp on both economic theory and reality, rendering their analyses of the current crisis wrong and/or irrelevant.