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A military analogy would be, how do you maintain combat-readiness in your defence forces after two generations of peace? And if you don't, who do you turn to when the unthinkable happens and you're invaded?

You make the training as close to the real thing as you can. Grueling training exercises, live fire with heavy artillery over your heads as you advance, and so on.

What the central bank equivalence of this would be, I do not know.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Dec 3rd, 2010 at 02:44:38 PM EST
[ Parent ]
Pretend that you are a small, open economy somewhere in South-East Asia in 1997.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Dec 3rd, 2010 at 03:08:31 PM EST
[ Parent ]
Since the small southeast Asian economies collapsed in 1997 I assume this is snark & having been bit once, already today, I refuse to play.

:-)


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Dec 3rd, 2010 at 03:20:33 PM EST
[ Parent ]
(Note: SE Asia was rescued by massive injection of outside capital flows.  Indonesian companies were picked-up for as low as 10 cents on the dollar -- IIRC.)

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Fri Dec 3rd, 2010 at 03:22:36 PM EST
[ Parent ]
It's not.

Starvid wanted an example of a live-fire exercise. Simulating the reaction to a 1997 SE Asia style collapse would be an excellent exercise for a central banker.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Dec 3rd, 2010 at 03:38:38 PM EST
[ Parent ]
Now we have the 2007-present crisis to play with, too...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Sat Dec 4th, 2010 at 04:27:37 AM EST
[ Parent ]
And that is one advantage of running exercises: Even if your macro models are garbage, and your economics profession is empirically bankrupt, you can still push for an upgrade of the exercise scenarios whenever an economy or two blows up in a sufficiently spectacular fashion somewhere in the world. "Nobody could have predicted that this would happen (to white people)" is a weaksauce excuse when you're drilling four "unthinkable" scenarios every year.

It also provides a more graceful out for the people who didn't see the crash coming. Rather than having to discard their entire academic career because it's garbage, they can say "well, I sure didn't see that coming, but let's update out scenarios to make sure we'll be ready to deal with it next time." While not as viscerally satisfying as purging the morons, it would go a long way towards improving the financial regulator's combat readiness.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Dec 4th, 2010 at 10:58:54 AM EST
[ Parent ]
Except, when they conducted the banking stress tests earlier this year they still managed to not stress too much in directions that they knew were problematic...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Sat Dec 4th, 2010 at 11:20:42 AM EST
[ Parent ]
Ah yes, but that would only undermine CONFIDENCE, and whatever else, we mustn't stress the investors...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Dec 4th, 2010 at 11:27:26 AM EST
[ Parent ]
You know, I would like to see Zapatero employ on the financial sector the tactics he deployed against the air traffic controllers today...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Sat Dec 4th, 2010 at 02:50:53 PM EST
[ Parent ]
Well, yeah, that's why you need to drill people ahead of time. So they don't make that sort of newbie mistakes next time.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Dec 4th, 2010 at 12:23:22 PM EST
[ Parent ]
In either the case of the US or European Stress Tests, calling the methodology employed "a rookie mistake" is being generous in your assumptions about the intent and probably overly harsh in your assumptions about their competence. I see little evidence that, in either case, the intent was to test a reasonable worst case situation, but rather to insure that all but the most laughable cases got a pass, and there was a struggle about even the laughable cases, such as Hypo bank.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Dec 4th, 2010 at 12:53:19 PM EST
[ Parent ]
hey econo-wonkers, here's a dumb question from the bleachers:

what is the equivalent of Wall St. in the EU?

are there parallels with the ECB?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Dec 7th, 2010 at 05:28:02 PM EST
[ Parent ]
"The City" - now being challenged by Frankfurt

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Dec 7th, 2010 at 06:19:52 PM EST
[ Parent ]
Alternatively, you can engage your troops in small-scale conflicts far from your country (say, Afghanistan)....

"People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them." - Jean Monnet
by Melanchthon on Fri Dec 3rd, 2010 at 03:20:30 PM EST
[ Parent ]
No, that gives you the wrong skills. COIN is a completely different game than conventional war. Just ask Georgia...

(even if you obviously will learn some good things)

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Dec 3rd, 2010 at 05:06:38 PM EST
[ Parent ]
Yeah, but they're not doing COIN in Afghanistan...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Dec 3rd, 2010 at 05:09:57 PM EST
[ Parent ]
Since McCrystal/Obama, they are.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Dec 4th, 2010 at 07:04:29 AM EST
[ Parent ]
In this context, it is irrelevant. What matters is what your enemy is doing, and there's certainly not doing conventional war.
by gk (gk (gk quattro due due sette @gmail.com)) on Sat Dec 4th, 2010 at 07:18:33 AM EST
[ Parent ]
Starvid:
What the central bank equivalence of this would be, I do not know.

maybe just studying history would be enough!

i am watching a doc on arte about how the germans held up the french franc for a year in '93, and protected it from speculators.

fascinating...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Dec 7th, 2010 at 06:21:09 PM EST
[ Parent ]

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