On Mon, Oct 19, 2009 at 6:33 PM, Mike Beggs <mikejbeggs at gmail.com> wrote:
> On Tue, Oct 20, 2009 at 1:23 AM, Marv Gandall <marvgandall at videotron.ca>
> wrote:
>
> > Countdown to the next crisis is already under way
> > By Wolfgang Munchau
> > Financial Times
> > Monday Oct 19 2009
>
> ...
>
> > While, according to Minsky, these are the deep causes of instability, the
> > mechanism through which instability comes about is the way governments
> and
> > central banks respond to crises. The state has potent means to end a
> > recession, but the policies it uses give rise to the next phase of
> > instability. Minsky made that observation on the basis of data mostly
> from
> > the 1970s and early 1980s, but his theory describes very well what has
> been
> > happening to the global economy ever since, especially in the past
> decade.
> > The world has witnessed a proliferation of financial bubbles and extreme
> > economic instability that cannot be explained by any of the established
> > macroeconomic models. Minsky is about all we have.
>
> This is one of the few accurate presentations of Minsky's argument
> I've seen in the press - the ultimate outcome is not necessarily a
> financial collapse; monetary policy stuck in a dilemma; continued
> upward instability in asset and commodity prices. He's right that the
> situation has some analogies to the early 1980s. The big difference is
> that then commodity price inflation was still recent history, and
> although the Fed had been rescuing financial institutions, it was also
> raising interest rates sky-high in pursuit of a monetary target. Now
> it's not. And ultimately Minsky's prediction circa 1980, that the Fed
> would be forced to drop its monetary targets and inflation would
> resume, was only half right. The swapping of dodgy assets for safe
> Federal securities on bank balance sheets is classic Minsky, but like
> SA says, it's hard to see how it could flow into commodity prices at
> this point - though assets are going back up.
>
> One problem with this piece is the assumption that the long-run
> average price-earnings ratio is also a centre of gravity for asset
> prices. I'm not sure that's true.
>
> Cheers,
> Mike
> scandalum.wordpress.com
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>
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