The economics Nobel offers a timely warning about the power of central banks | Techy Kings

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The Nobel in economics is a kind of step-cousin to the Nobel family.

It came about 70 years after its literary and scientific counterpart, in 1969, and was technically called the “Sveriges Riksbank Prize in Economic Sciences.” It is awarded by the central bank of Sweden, in honor of the renaissance man named Alfred Nobel who established the prize.

Some scholars really don’t like the economics prize, including one of Nobel’s own lineage, who dismisses it as a “PR coup by economists.”

But hey, it still comes with a cash prize. And it’s also very useful in reminding the world that economics as an academic field is, frankly, a barely understood study that’s so constantly evolving and changing that it’s almost useless outside of academia. (And I mean that with all due respect to economists, who, unlike journalists, know what they’re doing when they choose their suffering lives.)

Ben Bernanke, Douglas Diamond and Philip Dybvig pose at the Royal Swedish Academy of Sciences.

Here’s the thing: Ben Bernanke, the former chairman of the Federal Reserve who guided the US economy through the 2008 financial crisis and subsequent recession, was awarded the Nobel in economics along with two other economists, Douglas Diamond and Philip Dybvig. (Congratulations to all the winners, with apologies to Doug and Phil, who will forever be referred to in Nobel headlines as “and two other economists.”)

Bernanke, who previously taught at Princeton and earned a Ph.D from MIT, received the award for his research on the Great Depression. In short, his work shows that bank failures are often the cause, not merely the result, of financial crises.

That was groundbreaking when he published it in 1983. Today, it’s conventional wisdom.

WHY IT’S IMPORTANT

Timing is everything here. The Nobel Committee has been known to play politics (see: that time Barack Obama was awarded the Nobel Peace Prize after only eight months in office). And right now, it’s using its focus to draw attention to the high-risk gambles being played at central banks around the world, especially the Fed.

A rapid increase in interest rates, led by the US central bank, sent markets around the world into turmoil. And it’s bad news especially for emerging economies.

Monetary tightening – especially when it is aggressive and synchronized across major economies – could cause worse damage globally than the 2008 financial crisis and the 2020 pandemic, a United Nations agency warned earlier this month. It called the Fed’s policy an “irresponsible gamble” with the lives of the less fortunate.

LESSONS FROM HISTORY

On Monday, Diamond, one of three newly minted Nobel laureates, acknowledged that rate movements around the world caused market instability.

But he believes the system is more resilient than it used to be because of the hard lessons learned from the 2008 crash, my colleague Julia Horowitz reports.

“Recent memories of the crisis and improvements in regulatory policies around the world have left the system far more vulnerable,” Diamond said.

Let’s hope he’s right.

Oh hey, talk about the Fed causing pain: We’re going to see big job losses, according to Bank of America.

Under the rate hikes imposed by Jay Powell & Co, the US economy could see job growth cut in half in the fourth quarter of this year. Early next year, the bank expects to lose about 175,000 jobs a month.

The litigation between Elon Musk and Twitter is officially on hold. The two sides now have until October 28 to strike a deal or once again prepare for a court battle.

The big question now is about money.

Here’s the deal: Even the richest people in the world don’t have this kind of cash lying around. Musk’s wealth is tied up in Tesla stock, which he can’t get off easily for many reasons. He had to borrow the money, which meant he had to get the bank to raise the horse.

By most accounts, he will be able to make it happen. But the Twitter deal is a harder thing to do now than it was in April, when Musk said he had lined up more than $46 billion in financing, including two debt commitments from Morgan Stanley and another unnamed financial institution, my colleague Clare Duffy writes .

Musk has spent the past few months trashing Twitter as he tries to renege on his offer. Meanwhile, tech stocks have been hammered, ad revenue has slumped, and the global economy is edging closer to recession, dampening investors’ appetite for risk.

Musk’s legal team said last week that the banks that had previously done the debt financing were “working together to finance the closing.”

Twitter, understandably, is skeptical, given the many curveballs Musk has thrown at them since he got involved with the company earlier this year. The company raised concerns last week that a representative for one of the banks testified that Musk had yet to send a loan notice and “didn’t tell them that he intended to close the transaction, let alone on any specific timeline.”

What is Musk’s end game?

No one knows, probably least of all Musk. But many legal experts following the case said Musk understood he would likely lose the trial and then be forced to buy Twitter anyway. He would rather buy the entire company than be deposed by Twitter’s lawyers and do further damage to Twitter in a trial.

And the banks probably couldn’t leave even if they wanted to.

“The only way they can get out of it is to claim material adverse effects and Twitter has changed so much since they agreed to the deal that they no longer want to finance the deal,” said George Geis, professor of strategy at the UCLA Anderson School of Management.

Even if the bank succeeds there, Musk probably won’t miss out. The judge in the case could rule that Musk is guilty of failing to finance — not a far-fetched notion after all the trash talking — and order him to sue Morgan Stanley to provide the funds or close the deal without it.

Bottom line, it looks like Musk will end up owning Twitter one way or another. And given his only vague musings about what he’s actually going to do with it, there’s a huge amount of unknowns lurking in Twitter’s future.

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