[MCN] A footnote on growthonomics

[Lance Olsen]

The Economist Jul 30th 2016 | From the print edition

  Financial stability
Minsky's moment
The second article in our series on seminal 
economic ideas looks at Hyman Minsky's hypothesis 
that booms sow the seeds of busts

http://www.economist.com/news/economics-brief/21702740-second-article-our-series-seminal-economic-ideas-looks-hyman-minskys

Excerpts

Minsky's conclusion was unsettling.

Minsky was a maverick.

His challenge to the prophets of efficient markets was even more acute.

A new version of the "Handbook of 
Macroeconomics", an influential survey that was 
first published in 1999, is in the works. This 
time, it will make linkages between finance and 
economic activity a major component, with at 
least two articles citing Minsky. As Mr Krugman 
has quipped: "We are all Minskyites now."

Central bankers seem to agree. In a speech in 
2009, before she became head of the Federal 
Reserve, Janet Yellen said Minsky's work had 
"become required reading". In a 2013 speech, made 
while he was governor of the Bank of England, 
Mervyn King agreed with Minsky's view that 
stability in credit markets leads to exuberance 
and eventually to instability. Mark Carney, Lord 
King's successor, has referred to Minsky moments 
on at least two occasions.

But in time, memories of the 2008 turmoil will 
dim. Firms will again race to expand, banks to 
fund them and regulators to loosen constraints. 
The warnings of Minsky will fade away. The 
further we move on from the last crisis, the less 
we want to hear from those who see another one 
coming. 

http://www.economist.com/news/economics-brief/21702740-second-article-our-series-seminal-economic-ideas-looks-hyman-minskys

-- 
+++++++++++++++++++++++++++++++++++++++++++++++++++++
"Still, the boom of the 1980s was unique. Not 
only did creditors lend more freely than they had 
in the past, but the government intervened more 
actively than it had ever done before to absorb 
the inevitable losses."

"The fundamental investment question is whether 
even the government is big enough to underwrite, 
with good money, the losses born of the lending 
practices of the 1980s."

"By standing behind good banks and bad banks 
alike, the government in effect removed the 
oldest charter in banking -- that is, 
safekeeping."

"In the early 1990s a number of long-running 
trends were apparently cresting Š. Tommy 
Mullaney, eleven, of Crownsville, Maryland, 
returned home from camp in the summer of 1990 to 
find his name inscribed on a MasterCard complete 
with a $5,000 credit line. 'I jumped up and down 
and said Wow - the hologram was cool,' Tommy told 
the Washington Post. 'But it sure made me wonder 
who was running that bank'."

James Grant. Money of the Mind: Borrowing and 
Lending in America from the Civil War to Michael 
Milken. Farrar Straus Giroux. 1992.


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