Below is the abstract of a presentation to be delivered by Frank Veneroso on Monday April 30th (1:30pm) at the Levy Institute:<\/p>\n
Most orthodox explanations of what we call asset bubbles and financial crises attribute them to exogenous shocks to the economy.\u00a0 For example, a Fed monetary policy error supposedly caused the Great Depression with its three great banking crises, and a Greenspan monetary policy excess led to the asset bubbles and eventual financial crisis of the last two decades.<\/p>\n
For Hyman Minsky financial fragility and eventual financial crisis was endogenous to capitalist economies.\u00a0 Minsky saw this process occurring over two time frames.\u00a0 First, over the course of a single business cycle, fading memories of the cash flow shortfalls of the most recent recession led to more positive profit expectations, greater fixed investment, a higher reliance on debt finance, and an overall condition of greater financial fragility.\u00a0 In addition to this \u201cfinancial instability\u201d hypothesis appropriate to a single business cycle, Minsky also saw an endogenous process of ever greater financial fragility from business cycle to business cycle throughout the post war period.\u00a0 This endogenous process resulted from ever greater bailouts by Big Government and the Big Central Bank in the recurrent post war recessions that threatened financial crisis and debt deflation.\u00a0 In effect, an interplay between private risk taking and public sector bailouts resulted in mounting moral hazard across business cycles which distorted risk perceptions to an ever greater degree.\u00a0 This led to ever increasing private indebtedness and consequent financial fragility.<\/p>\n
Hyman Minsky largely limited his focus on these two endogenous processes that fostered rising financial fragility to the world of banks and their corporate borrowers.\u00a0 In his later writings on money manager capitalism, he transferred this thinking to the realm of markets in traded securities.\u00a0 His principal focus was the market for traded debt securities.\u00a0\u00a0 He discussed stock markets and exchange markets only tangentially and commodity markets not at all.<\/p>\n
Over the last twenty years we have seen the emergence of extreme financial fragility and subsequent financial crisis.\u00a0 Traded asset markets have been paramount.\u00a0 Stock markets and commodity markets have\u00a0 played critical roles. How does Hyman Minsky\u2019s thinking about the endogeneity of financial instability within economic cycles and across successive economic cycles help explain the rise of speculation and bubbles in traded asset markets like those for stocks and commodities over the last two decades?<\/p>\n
One can start with Minsky\u2019s writings on money manager capitalism and fold into them complimentary contributions from many other notable economic theorists to flesh out a Minsky-like theory of an endogenous process of speculation and asset bubble propagation in such traded asset markets.\u00a0 This broadens the scope of Minsky\u2019s seminal thinking on the financial instability process and helps explain the entire serial bubble era of the last two decades as well as all the facets of the Great Crisis of 2008-2009 which followed.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"
Below is the abstract of a presentation to be delivered by Frank Veneroso on Monday April 30th (1:30pm) at the Levy Institute: Most orthodox explanations of what we call asset bubbles and financial crises attribute them to exogenous shocks to the economy.\u00a0 For example, a Fed monetary policy error supposedly caused the Great Depression with […]<\/p>\n","protected":false},"author":202,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8,25],"tags":[279,282,1129,278,30,280,281,277],"class_list":["post-4543","post","type-post","status-publish","format-standard","hentry","category-financial-crisis","category-levy-institute","tag-asset-bubbles","tag-commodities","tag-financial-crisis","tag-financial-instability","tag-minsky","tag-money-managers","tag-stocks","tag-veneroso"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/4543","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/users\/202"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/comments?post=4543"}],"version-history":[{"count":5,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/4543\/revisions"}],"predecessor-version":[{"id":4552,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/4543\/revisions\/4552"}],"wp:attachment":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/media?parent=4543"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/categories?post=4543"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/tags?post=4543"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}