The Trends in the Performance of the Monetary Sector - Annotated Bibliography Example

According to the article, economics went wrong when economists first mistook beauty for truth. Very few economists saw a looming crisis as most of them had been caught up in economics analysis without coming up with any prediction. The discipline was so romanticized and sanitized that the economists ignore any other factors that could go wrong. They did not consider facts like human rationality that led to busts, as well as the imperfections of the capital markets.

Adam Smith has been known to be the father of Economics. His notion was, ‘trust the market’ but, unfortunately, was brought down by the great depression. Keynes came up with a more moderately applicable notion which was further criticized and developed by Friedman.

The other point where they went wrong was in the explanation of macro, the Panglossian finance as well as the stimulus squabble.
http://www.stlouisfed.org/publications/re/articles/?id=2165
The link explains shadow banking and says that shadow banking is an activity that was bred after the 2007 remarks of manager Paul McCulley. He used the term to describe a large part of financial intermediation that existed outside regulated banks’ balance sheets and other financial institutions. The art of shadow banking renders a regulated commercial fragile and exposed, which means it becomes a threat. Shadow banking also employs much more complicated processes that are similar to traditional banking processes. The whole process of shadow banking transforms the long–term loans with a lot of credit risk into tools of short maturity and low risk-oriented that can be redeemed on demand.

http://www.economicprincipals.com/issues/2012.10.07/1424.htm
According to the article, the segment tries to find out what happened. The economic markets have experienced problems ever since the conception of economics. The problems are mainly about the demands for cash that should be used in exchange for bank debts that takes several forms. The other problem was the demand for cash on a larger scale. The exchange was not possible with the banking system since the assets that were owned by the banking system could not be sold in masses. The crises were also sudden, and the events were unpredictable. However, the levels of fragility were still observable. When crises occur, they can be halted and stopped but at very expensive costs.
According to the article on what central banks should do, the central banks bear a role to participate also in such economics.

The fiscal policies should be kept in line with the monetary policies to balance the demand for cash. The monetary policies that will be implemented by the central banks in regulating the commercial banks should be forward-looking and predictive. When the central bank is revising and reviewing the monetary policies, they should be consistence and collaborate with the trends in the current markets, output, as well as market price fluctuations. The policymakers in the central banks should be accountable for the control of government actions on the economy. Central banks should also avoid time inconsistency that arises because of the incentives that try to exploit the short–term trade-off which exists between inflation and unemployment. Read More