Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Posts Tagged ‘Minsky’

The White Swans of 2020

Posted by hkarner - 19. Februar 2020

NEW YORK – In my 2010 book, Crisis Economics, I defined financial crises not as the “black swan” events that Nassim Nicholas Taleb described in his eponymous bestseller, but as “white swans.” According to Taleb, black swans are events that emerge unpredictably, like a tornado, from a fat-tailed statistical distribution. But I argued that financial crises, at least, are more like hurricanes: they are the predictable result of built-up economic and financial vulnerabilities and policy mistakes. 

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The Eurozone’s Minsky Conundrum

Posted by hkarner - 12. November 2015

Photo of Daniel Gros

Daniel Gros

Daniel Gros is Director of the Brussels-based Center for European Policy Studies. He has worked for the International Monetary Fund, and served as an economic adviser to the European Commission, the European Parliament, and the French prime minister and finance minister. He is the editor of Economie Internationale and International Finance.

NOV 12, 2015, Project Syndicate

BRUSSELS – Stubbornly low inflation has the European Central Bank worried. But its response – essentially just more quantitative easing – could backfire, exacerbating imbalances and generating serious financial instability.

As it stands, the headline consumer price index in the eurozone hovers around zero, and even core inflation remains below 1% – too far for comfort from the ECB’s target of around 2%. While a new round of weakness in global commodity prices earlier this year contributed to these figures, it does not explain the weakness in longer-term inflation expectations, which have improved little since March, when the ECB started its massive €60 billion ($66.3 billion) per month bond-buying program.

But instead of rethinking its strategy, the ECB is considering doubling down: buying even more bonds and lowering its benchmark interest rate even further into negative territory. This would be a serious mistake. Den Rest des Beitrags lesen »

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Bubbles, Bubbles Everywhere

Posted by hkarner - 3. November 2013

By John Mauldin

November 1, 2013

– Albert Einstein

Genius is a rising stock market.
– John Kenneth Galbraith

Any plan conceived in moderation must fail when circumstances are set in extremes.
– Prince Metternich

You can almost feel it in the fall air (unless you are in the Southern Hemisphere). The froth and foam on markets of all shapes and sizes all over the world. It is an exhilarating feeling, and the pundits who populate the media outlets are bubbling over with it. There is nothing like a rising market to help lift our mood. Unless of course, as Prof. Kindleberger famously cautioned (see below), we are not participating in that rising market. Then we feel like losers. But what if the rising market is … a bubble? Are we smart enough to ride and then step aside before it bursts? Research says we all think that we are, yet we rarely demonstrate the actual ability. Den Rest des Beitrags lesen »

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What Do Banks Do? What Should They Do?

Posted by hkarner - 3. November 2013

Author: L. Randall Wray  ·  November 2nd, 2013  ·  RGE EconoMonitor

Some time back there was a bit of a kerfluffle when Paul Krugman argued that one shouldn’t bother with Minsky if one wants to understand banking. He went on to present the typical, and fatally flawed, textbook view. See here: http://www.economonitor.com/lrwray/2012/04/02/krugman-versus-minsky-who-should-you-bank-on-when-it-comes-to-banking/, and here: http://www.economonitor.com/lrwray/2013/08/28/krugman-rediscovers-the-wheel-commercial-banks-as-creators-of-money/, for my responses.

A new issue of Accounting, Economics and Law has published a series of articles on Minsky and banking: http://www.degruyter.com/view/j/ael.2013.3.issue-3/issue-files/ael.2013.3.issue-3.xml. In addition to my contribution, you can find some nice pieces by Thorvald Moe, Yuri Bondi, and Robert Boyer.

According to Minsky, “A capitalist economy can be described by a set of interrelated balance sheets and income statements”. The assets on a balance sheet are either financial or real, held to yield income or to be sold or pledged. The liabilities represent a prior commitment to make payments on demand, on a specified date, or when some contingency occurs. Assets and liabilities are denominated in the money of account, and the excess of the value of assets over the value of liabilities is counted as nominal net worth. All economic units – households, firms, financial institutions, governments – take positions in assets by issuing liabilities, with margins of safety maintained for protection. One margin of safety is the excess of income expected to be generated by ownership of assets over the payment commitments entailed in the liabilities. Another is net worth – for a given expected income stream, the greater the value of assets relative to liabilities, the greater the margin of safety. And still another is the liquidity of the position: if assets can be sold quickly or pledged as collateral in a loan, the margin of safety is bigger. Of course, in the aggregate all financial assets and liabilities net to zero, with only real assets representing aggregate net worth. These three types of margins of safety are individually important, and are complements not substitutes. Den Rest des Beitrags lesen »

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“This Country Is Different”

Posted by hkarner - 4. Juli 2013

‎Montag, ‎01. ‎Juli ‎2013, ‏‎23:23:00 | John Mauldin

What’s the Deal?
Is the Trend Your Friend?

Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works.

– John Mills, „On Credit Cycles and the Origin of Commercial Panics,“ 1867

Hyman Minsky developed an economics of financial instability, of instability bred by stability itself…. Minsky’s approach, very different from Godley’s, is conceptual rather than statistical. A key virtue is that it puts finance at the center of economic analysis, analytically inseparable from what is sometimes called real economic activity, for the simple reason that capitalistic economies are run by banks.

To grasp what Minsky is about, it seems to me, is to go immediately beyond the coarse notion of the ‚Minsky moment,‘ a concept which implies falsely that there are also non-Minsky moments. It is to recognize that the financial system is both necessary and dangerous, that strict financial regulation is both indispensable and imperfect.

– James Galbraith, 5th annual Dijon conference on post-Keynesian economics, Copenhagen, May 2011

I find myself finishing this letter on an island off the coast of Croatia, on the backside of the middle of nowhere. But it is the perfect place to contemplate my recent experience in Cyprus. Through the efforts of your fellow readers, I was able to meet a wide variety of people and have some in-depth discussions on the crisis that has enveloped Cyprus. And while the details are different, of course, there is a pattern to the weave, so to speak, that calls to mind various aspects of the crisis that began in 2008. And perhaps that pattern will give us a glimpse of what else may be coming our way.

You must first realize that Cyprus is a very small country, some 800,000 people. Among the leadership, everyone knows everyone. There is much to admire, as we will see. But Cyprus has had a gut-wrenching crisis, proportionately more dire than any in other European countries recently; and precedents are being established here for how future problems will be dealt with in the Eurozone and elsewhere. Den Rest des Beitrags lesen »

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Ending the Era of Ponzi Finance

Posted by hkarner - 5. Januar 2013

Absolutely essential reading. But: read only if your blood pressure is o.k. (hfk)

John Mauldin, January 4, 2013

There is a level of (let’s call it) discomfort among investors and business people everywhere I go in the world now. It is becoming increasingly palpable with each passing month. The overriding sentiment seems to be, „That which cannot be sustained will not be.“

We live in a world that is premised on economic structures that are now unsustainable, and that is a word we are going to hear used more and more this year. Unsustainable. It will be a theme in my writing, not only in my annual forecast issue, which will be out in a few days, but throughout the year. But just because things are unsustainable does not mean the end of the world for you and me. It is just that our world will change. Our job is to make sure that we manage the transition.

Transition. That is another word we are going to see a lot this year and next. I am going to invest a great deal of my intellectual capital (meager as it is) in thinking about how we transition our lives (not just our investments!) through the Endgame of the biggest bubble in the history of the world, that of government debt and promises. That bubble is going to collapse, in one way or another. Our job is to make sure we are not in the vicinity of ground zero. Meanwhile, there are a lot of positive things happening that we do not want to miss while our governments are busy rearranging deck chairs and kicking cans.

In today’s Outside the Box, the first of 2013, we’ll look at the opening pages of an important paper written by Daniel Stelter of the Boston Consulting Group. I have his permission to send it on to you. At the end of the letter is a link to my site, where you can read the rest of the piece (his suggestions for government action) if you are interested. If you are not registered on Mauldin Economics, just put in your email address and then you’ll have immediate access.

Warning: there are sections of Daniel’s article that are not politically correct! I can guarantee you that you will not agree with all of his ten suggestions. Some will raise your blood pressure. But I suggest you read from the point of view of understanding just how difficult it will be to resolve the problems our governments have created. Den Rest des Beitrags lesen »

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Economic Singularity

Posted by hkarner - 16. Oktober 2012

By John Mauldin | Oct 15, 2012 

The Economic Singularity
The Minsky Moment
The Event Horizon
The Glide Path
Speaking on Alternatives

„Concern about politics and the processes of international co-operation is warranted but the best one can hope for from politics in any country is that it will drive rational responses to serious problems. If there is no consensus on the causes or solutions to serious problems, it is unreasonable to ask a political system to implement forceful actions in a sustained way. Unfortunately, this is to an important extent the case with respect to current economic difficulties, especially in the industrial world.

While there is agreement on the need for more growth and job creation in the short run and on containing the accumulation of debt in the long run, there are deep differences of opinion both within and across countries as to how this can be accomplished. What might be labelled the ‚orthodox view‘ attributes much of our current difficulty to excess borrowing by the public and private sectors, emphasises the need to contain debt, puts a premium on credibly austere fiscal and monetary policies, and stresses the need for long-term structural measures rather than short-term demand-oriented steps to promote growth.

„The alternative ‚demand support view‘ also recognises the need to contain debt accumulation and avoid high inflation, but it pushes for steps to increase demand in the short run as a means of jump-starting economic growth and setting off a virtuous circle in which income growth, job creation and financial strengthening are mutually reinforcing. International economic dialogue has vacillated between these two viewpoints in recent years.“

– Lawrence Summers, The Financial Times, October 14, 2012 Den Rest des Beitrags lesen »

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