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Policy Pitfalls in a Financially Fragile Economy
Get PDFOriginally prepared for Perspectives on the Stagflation Economy Third Annual Sewanee Economics Symposium, The University of the South, Sewanee, Tennessee. Also submitted to the Hearings before the Subcommittee on Domestic Monetary Policy of the Committee on Banking, Finance and Urban Affairs, 97th Congress, 2nd Session. Professor Minsky\u27s Statement to that Subcommittee is also available on the Archive:
Minsky, Hyman P. Ph.D., Statement before the Subcommittee on Domestic Monetary Policy of the Committee of Banking, Finance and Urban Affairs of the US House of Representatives (1982). Hyman P. Minsky Archive. Paper 65.http://digitalcommons.bard.edu/hm_archive/65
Also included here is Professor Minsky\u27s manuscript copy of the paper Policy Pitfalls in a Financially Fragile Economy
"The 1966 Financial Crisis: A Case of Minskian Instability?"
Get PDFThe so-called credit crunch of 1966 has long been recognized as the first significant postwar financial crisis and one that required the first important intervention by the Federal Reserve Bank. In the midst of the robust postwar expansion, the Fed began to fear inflation and tightened monetary policy to the point at which profitability of financial institutions was threatened. As Minsky argued, "By the end of August, the disorganization in the municipals market, rumors about the solvency and liquidity of savings institutions, and the frantic position-making efforts by money-market banks generated what can be characterized as a controlled panic. The situation clearly called for Federal Reserve action." The Fed was forced to enter as a lender of last resort to save the muni bond market, which in effect validated practices that were stretching liquidity. As a result of Fed intervention, the economy continued to expand, new financial practices emerged and were validated, leverage ratios increased, memories of the Great Depression faded, and markets came to expect that big government and the Fed would come to the rescue as needed. That 1966 crisis was only a minor speed bump on the road to Minskian fragility. To some extent, 1966 proved to be the first verification of the "financial instability hypothesis" that Minsky had been developing since the late 1950s, and the events of that year would stimulate further development of his analysis of the early postwar transition from a "robust" financial system toward a "fragile" financial system.
Financial Instability and the Decline(?) of Banking: Public Policy Implications
Get PDFPaper prepared for the 36th Annual Conference on Bank Structure and Competition, Federal Reserve Bank of Chicago, held 4-6 May 1994, Fairmont Hotel, Chicago. The theme was The (Declining) Role of Banking
Finance and Stability: The Limits of Capitalism
Get PDFOnce again the United States economy is facing a crisis, resolution of which first requires the realization that there are many types of capitalism: Solutions implemented in the past, therefore, may or may not be an appropriate solution today, as they could have been implemented as an answer to a problem posed within the context of a different model. Alternatively, the solution may lie in the implementation of a totally new economic regime in answer to reoccurring problems inherent in capitalism in general. The implementation of a new model is not a unique happening in United States economic history. The interventionist model-set in motion by President Roosevelt in answer to the failure of the laissez-faire model in the 1930s-dealt with the obvious flaw inherent in capitalism in general namely, its inability to maintain a level of aggregate demand consistent with full employment. Implementation of the interventionist model prevented a massive depression of the type experienced in the 1930s from being repeated due to the larger role played by the government sector in maintaining demand via active fiscal policy, while moderating inflation through the use of monetary policy. The interventionist model also recognized the less obvious, deeper flaw of capitalism-namely, the manner in which the financial system can adversely affect the price of assets relative to that of current output. Absent any interventionist policy, the resulting decline in private investment and profits leads to a downward spiral and collapse of the financial sector. The institutional roadblocks included in the interventionist model were sufficient to avert large disequilibriums in asset and output prices, thereby sustaining profits and precluding a deep recession. (Indeed, the Federal Reserve was not forced to act to avert a financial crisis until 1968, when problems arose in the commercial paper market.) The interventionist model, however, was abrogated during the 1980s with the reinstitution of a new laissez-faire model. The new model eliminated many of the restrictions imposed on financial sector, massive increases in national deficits through unproductive public sector spending (made even more inefficient by the resulting interest on the debt), and the growth of speculative financing schemes that left us with too many highly indebted firms. A large, financially induced depression was contained only through the reintroduction of massive governing monetary and fiscal intervention in the form of the S&L bailout and the maintenance of profits with massive deficits. Although the subsequent drop in interest rates has resulted in a rise in asset values and somewhat abated the turmoil in the financial markets, the economy continues to stagnate
How to Maintain Full Employment
Get PDFOne of the ongoing columns, The ECONOMY from the Not-So Ivory Tower
Financial Instability and APT Bank Supervision
Get PDFPaper prepared for the 67th Annual Western Economics Association (WEA) Conference. Session: ‘Monetary Policy and Bank Supervision’, Friday, July 10, 1992 8:15-10:00 am, Hyatt Regency Hotel, San Francisco, California.
Also included here as a supplement is an outline presumably for his paper presentation
Standard Forecast Questioned
Get PDFAn Economic Appraisal, New York Journal of Commerce, Fri. April 26, 1974
Synopsis: How to get off the Back of a Tiger
Get PDFA talk delivered at the National Association of Business Economists, New York, NY
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