By Laura Elisa Leal, M.B.A. & Edson Timana, M.A.
The old saying that “history tends to repeat itself” is a well suited phrase for studying economic theories and institutions. Economic history, at least in the United States, demonstrates that fluctuations are a normal aspect of the boom-bust cycle. Everyone expects these fluctuations to happen and these corrections are vital to sustaining an open market system. When these market corrections occur (think 1929 or 2008), they can significantly impact prices, production levels, interest rates and the stock market. At times, these fluctuations become so severe and prolonged that people are compelled to do a close-up review of market structures and the instability that seems to be deeply rooted in both financial and investment paradigms. One would think that US markets would tend to shield themselves from such instability—that certain gates or walls (taken in the form of regulations, policies, and institutional intervention) could be strategically placed so as to minimize damage to US financial markets and increase the overall feeling of economic well-being.
In our more recent experience with financial/economic instability, we realized that economic growth (marked notably by increases in real GDP) can be terribly undermined by irrational valuation of assets and greater leniency towards leveraged borrowing, thus leading to what is commonly regarded as a balance sheet recession. The dangers of this type of recession is debt-deflation and systemic failure which ultimately leads to the trade-off of financial/economic destabilization…and once the pieces are picked up is doomed to be repeated yet again.
Hyman Minsky (1919-1996) was a keen observer of this recurring phenomenon. His observations on boom-bust business cycles laid the groundwork for his Financial Instability Hypothesis, thereby asserting a fresh perspective for explaining persistent destabilization forces found at both the business and macroeconomic levels. For decades, he asserted that “[t]he conclusions based on the models derived from standard theoretical economics cannot be applied to the formulation of policy for our type of economy…the model does not deal with time, money, uncertainty, financing of ownership of capital assets, and investments”(Minsky,1986).
To describe Minsky’s ideas more succinctly, macroeconomic stabilization would require that economic agents (primarily banks and government) be viewed as “cash inflow-outflow entities, facing solvency and liquidity survival constraints” and that these agents should exercise greater discretion when faced with the temptation of “financing long lived capital assets with short-term debt and rolling the debt at maturity into another short-term debt” (Mehrling, 2015). This affirms Minsky’s distrust of speculative and Ponzi financing and its destructive effects on the domestic economy and global markets. This is not to state, however, that all financing mechanisms should be constrained, but rather that short term financing should be used sparingly to finance long term projects due to the volatile nature of current financial markets (for instance, political events such as the Brexit vote or the use of negative interest rates in Europe/Japan clearly affirm that liquidity/credit is a global problem and that partially explains why there is a greater rate of volatility and market distortions).
In summary, Minsky believed that market destabilization could be mitigated by implementing the following recommendations:
1) Better cash flow examination procedures…in other words, there should be greater transparency between the Federal Reserve, member banks and fringe banks.
2) Extending access to the Federal Reserve’s discount window to primary securities dealers and important financial intermediaries
3) Carefully examining all financial institutions, and in particular those financial institutions that can be characterized as fringe banks such as real estate investment trusts, finance companies, government bond dealers, commercial paper houses and any other institution engaged in position making…the Federal Reserve must be aware of how these fringe banks finance their own operations and the extent to which commercial banks provide both the ‘normal’ finance and the ‘fall back’ financing for fringe bank institutions” (Kregel, 2010).
Minsky’s ideas about destabilizing market forces and how to address them open up readers into an intriguing world of finance, price theory and monetary/fiscal policies. Although his viewpoints are not altogether orthodox, Minsky’s work does in fact support some key underpinnings found in neoclassical Keynesian theory and at best, helps to explain how financial markets and economics leave their mark on political, social and legal institutions throughout the world. The aforementioned Minsky reforms could serve as reliable “monetary stabilizers” and thereby help economies to “normalize” and attain their target rates in both inflation and employment.
References
Kregel, J. (2010). Minsky Moments and Minsky’s Proposals for Regulation of an Unstable Financial System. Presented at 19th Annual Hyman P. Minsky Conference, Bard College. Mehrling, P.G. (2015, 30 September). Minsky’s Financial Instability Hypothesis and Modern Economics. [Weblog]. Retrieved 9 June, 2016], from: http://www.perrymehrling.com/ Minsky, H. P. (1986). Stabilizing an Unstable Economy. New York, NY: McGraw Hill Professional.
The truth is our economy is never going to get to a point a perfection. Yes, there will be improvements in what our policy makers put in place, but at the end of the day those policy makers are still humans. Which means they are bound to act on emotions and what makes there a world a better place in their eyes. I agree the banks should not overly use short term financing for long term projects because then they just continue to roll it over to a new short term financing until the project is completed. I suppose financial institutions or the government uses these short term financing options because it guarantees them a lower amount of interest they must pay and because banks and the government is more about collecting than just giving without a cause they want to retain the most amount of money possible. As Minsky’s view of banks and the government is cash inflow and cash outflow, this alone should tell you that banks and government make a lot of our financial decisions and based on how efficient and economically aware they are determines how successful our economy can be. Of course, banks and governments only play a part so alone they cannot take the blame for an imperfect economy.
At a glance, I like Minsky’s theories. Whenever I hear of another bailout, or other financing decisions, as the size of our country’s debt grows, I can’t help but think, “The government is regulating everyone else. Who’s regulating the government?” I see the need for government intervention in a market economy, but I like the idea of government and lending institutions “facing solvency and liquidity survival constraints.” It is ludicrous that the government of such a prosperous country should be in so much debt. It doesn’t make sense that lending institutions—places that specialize in finance—should have to be bailed out by the government because of poor money management, or poorly made lending decisions. If they are not managed well enough to succeed on their own merits, why can we not let them fail? Failure is an awfully strong incentive to enhance performance and be more discretionary in one’s spending.
I do agree with Minsky ideology behind our economic structure. History tends to repeat itself as we saw after the great depressions we found ourselves in another mild cause of it back in 2008. While in the hard times many actions are taken to prevent and get us out of the hurt, but its only to lessen the wrath of our own doing. I believe that Minsky’s ideas would help regulate cash flow and help our economy, but as humans we will always find a way to put ourselves in that position again. For all our lives we are thought thing to prevent us from falling into the hole we once were in, but as humans who make mistakes we can not prevent it from happening in some ways also I believe some kind of economical struggle is necessary to learn how to prevent the next one.
There is worth in evaluating our economical history in order to determine what to do both presently and in the future. The boom-bust cycle causes instability in the economy across all layers of the economy. Minsky was an expert on the boom-bust phenomena and was wise in asserting that certain forces, such as time and money, were unpredictable and could not be used in models that applied specifically to our economy. He felt this was especially true with consideration of money being put in short-term investments versus long-term investments. Minsky’s recognition of the actions of fringe banks reinvesting funds from long-term investments into short-term investments led to great instability due to the risk involved in this practice. This led Minsky to call for greater transparency of the Federal Reserve in dealing with non-major banking institutions. This resulted in new regulations and increased the safety of investments. We have Minksy to thank for what became his three recommendations for better banking safety leading to increased market stabilization.
Change happens over time. History has proved to change over centuries and it will fail to repeat itself if we do not learn from our past and try to prevent a disaster we have once overcome. For example, the Great Depression of 1929 and the recession of 2008 have provided research and information available to prevent these reoccurrences from happening once more. Minsky’s holds many notions including but not limited to monitoring our major factors with more precaution, more regulation of banks handing out loans, overall realistic judgments several of which I agree with. He acknowledges that our financial system and its institutions should be observed more closely to monitor their questionable practices. It is essential that we learn from our mistakes and come up with new solutions to resolve our issues and prevent new ones from surfacing, only then will the economy continue to advance and with any luck stabilize.
History does indeed tend to repeat itself (take 2008 for example), it’s interesting how a lot of economic theories revolve around this phrase. observing the economic fluctuations throughout history does play an important factor in an economist’s life. Minsky is a very intelligent man who used this phrase to make some valid points to prevent history from repeating itself. I agree with him that there needs to be more transparency with the federal reserve and fringe banks. The federal reserve must be aware of what is financially going on and make sure fringe banks are running smoothly without any complications concerning their finances. I can see Minsky’s methods benefiting our economy, considering his viewpoints do indeed support key points found in the Keynesian theory used by economists.
Minsky’s theories are great for what they are: theories. Essentially, Minsky states the obvious in that transparency in corporate and government transactions, access to Fed Reserve discounts for institutions responsible for market liquidity, and a better understanding of the financing of “fringe” banks would all aid in the prevention of market destabilization. However, humans are inherently selfish, and the likelihood of these recommendations being implemented in as large of a scale as the U.S. economy are slim at best. While these procedures would serve to benefit market stability and growth in the long run, the immediate costs associated with them would be off-putting to many financial firms as it would hinder their short-term personal gains. Thus, I believe that Minsky’s reforms bring into light the disconnection between theoretical and practical economics, as the assumption that people are incorruptible and at least somewhat altruistic or communal-oriented beings is indirectly made when presenting these theoretical corrections. Unfortunately, the irrational and self-serving behavior of people would prevent the proper implementation and sustainment of these strategies.
History repeating itself is something seen to be inevitable. You think after something happened we would know how to prevent it but this cycle of boom-bust continues. I believe Minsky presents good theories that could help our economy. His recommendations will help stabilize an economy and keep it where it needs to be theoretically, but those must be put into place before anything is for sure. We are human and we tend to mess things up a lot and what’s to say it won’t happen again. Financial crisis like in 2008 may never be prevented completely but better examination of what’s going on in the economy is a good place to start.
While great in theory, humans have the tendency to look after their own interests. Yes, you could argue that the government needs to control the financial sector, but let’s not forget many high-level government workers have a financial and personal interest in keeping the financial bubble up. Many have a responsibility towards businesses that fund their campaigns. Lobbyists consistently steer regulations that are supposed to protect fraud via the politicians they supported. When we can’t reduce the current level of control businesses have on the government, this will not be a practical solution. So, let’s think about how to remove the cause of this problem. There’s about an equal amount of lobbying in the EU and the US. However, in the EU, lobbyists make much more compromises and don’t have the same leverage US lobbyists have. I think the reason is that policymakers in the EU are not elected and do not need to raise significant amounts of money to campaign. This independence does not suffer the bias US policymakers have towards their donors and results in much more balanced decisions on policy.
Minksy has some ground breaking theories. it is a shame that economist around the world and government are not taking advantage of such theories. I agree with Minsky, the Federal Reserve, members banks and fringe banks should have more transparency. This way instead of using theoretical data, economist can use real number to evaluate financial condition of American economy. Another benefit from being transparent could be that economist can prepare better for future financial crisis. Most of the time the goverment get to know about the crisis the its already there and businesses start to close down and people become unemployed. This way the government will be able to see the future financial hurdles before they are hit with one. I am surprise that even in 2017 we as a country with the most billionaires and the most successful multinational companies still have people struggling to eat two times a day. Most people in this country live with a fear of not having a job the next day. We are such a strong nation, we should latest have a strong financial plan for the future.
History will repeat itself if we did not learn and improve from the past experience; I believe that this was the the case with United States economic situation. I agree to an extent with Minsky’s idea on how to lessen the problems of boom-bust cycle in United States economic history. I agree with Minsky’s idea that “there should be transparency of federal reserves,member banks and fringe banks” The companies or financial institutions that were bailout of financial crisis should be made accountable to the government as well as the public of how the money given to them was utilized. However, in my opinion, I think the government should stop using federal reserves as a trade off for financial destabilization. I believe that those companies in financial crisis should be allow to go out of business so that better businesses/companies, that can manage both their profit and losses, can be establish.
I do enjoy seeing how an economic scientist proposed proactive plans to help mitigate large market collapse instead of relying on hit or miss government policies that are reactive. By studying the boom-bust cycle that accompanies the market system Hyman Minsky created a hypothesis that details this force of economic nature. He stated that the economic models of the time couldn’t be applied to the economy given time, money, uncertainly, etc. He goes on to say that the banks and government should use more discretion when financing long term investments with short-term debt given this economic uncertainly. I can agree with Minsky’s point of being more cautious in the free market given is instability instead of acting too optimistically. However, this caution should not be translated into governmental policies. I still hold a firm belief that should certain actions lead to economic disparity for a business or group of people than a lesson will be learned and it is up to them to not repeat it. Understandably this belief hasn’t kept the American people and extension the government from making decisions that perpetuate the boom-bust cycle. However, I still believe that government intervention will only cause more issues than provide solutions.
-Christian Mejia
I find myself substantially agreeing with Minsky. Much like how economic cycles ebb and flow, so do the political institutions that manage and impact their policies, and should be examined and allowed to be transparently enacted as well. I most pointedly agree with Minsky in regards to examination of cash flow procedures and the “fringe markets” – the housing bubble sucking up resources before bursting is plain evidence of the need to control markets like the latter, to the extent that corruption and abuse within the financial sector should be minimized. However, this is something that would likely need to be consistently and regularly audited or similar given the natural national market fluctuations, but I am uncertain on how effective such a policy could be implemented even in the most favorable circumstances lest it come off as overly controlling to a population that by and large would rather “the free market sort it out.” But even then I find the reasoning specious, as time and time again has the free market not, in fact, sorted itself out, and shifting towards a pronounced lassez-faire system would exacerbate the potential repercussions of such monetary mishandling.
I believe that Minsky had some very good ideas about keeping the economy “open.” By allowing primary securities dealers and other financial intermediaries to borrow money from the Federal Reserve more freely, the market would most likely see more financial growth. By enforcing laws that kept banks transparent, the economy would more fully embrace a free market system. Greater transparency would enable investors to choose their banks more confidently. This would prevent a buildup of un-invested money and bad debt. Encouraging investment is an important part of a free market economy. Minsky’s comments about reducing the amount of short-term debt might not benefit the economy. Corporations and other institutions sometimes need short term financing in order to operate. Artificially reducing the amount of short-term debt available to investors would drive short-term rates too high for businesses to borrow, driving many businesses into financial distress and even bankruptcy. Also, restricting short-term financing would not reduce volatility. It would simply make trading more difficult, markets would be thinner, and prices would take longer to update.
-David Johnson
I do agree with Minsky’s ideas. I believe that if more people were held accountable for their own bad spending habits there would be more individuals in the market willing to work for what they receive creating a positive flow and less people with their hands out waiting on someone to pay their way. If the banks and government’s spending was more transparent to us, that too would lean us all toward a more free market, a more competitive market. With more competition, the public would benefit as a whole, and the market overall would be more stable. There would be less of a roller coaster economically for the country as a whole in turn affecting the world market in a positive way. I think stability should be the norm instead of recession and recovery.
I support Minski’s theories. He had his own opinions on the market and didn’t agree with many others on how it worked. I think that history does repeat itself, and especially in economics. He supported some government intervention during financial crisis. Minsky stated that the collection of debt in the economy can be caused by a non-government sector. He also believed that when the system was doing well, it was taken for granted and risky decisions were made that eventually jeopardized the market. This eventually led to a crisis. He tried to figure out the reason behind financial crisis since he had been through it and born in the great depression era. He explains that the market goes from strong to fragile and that’s how the business cycle is created. His theories have not been added to central bank policies, however, after the hard times in the market in 2008 people did become more interested in his ideas.
-McKayla Sanchez
I found the first sentence of this blog a linkage point for many economists’ points of view. In reading quotes by Henry Hazlitt the other day I came across one of which re-emphasized the same point Minsky states. Hazlitt said, “The ideas which now pass for brilliant innovations and advances are in fact mere revivals of ancient errors, and a further proof of the dictum that those who are ignorant of the past are condemned to repeat it.” It is obviously true that one must learn from past mistakes and not repeat them. Economics is exactly the same way. The United States instability, which lowers real gross domestic product is linked to an increase in borrowing, resulting in a balance sheet recession. Increasing leverage borrowing can be very risky and result in debt-deflation as observed by Hyman Minsky. I agree with Minsky that short-term financing should be used sparingly to finance long term projects. Lending money will only lead to economic concerns and so Minsky’s theories make sense to regulate cash flow. I believe we have to hold certain policies in place, even though the world is becoming more and more advanced…we cannot afford to go down-hill as an economy.
1) Better cash flow examinations. – I completely agree with this. There is an extreme about of room for money to go missing in our country’s bank system. It’s strange. Due to the level of strangeness, I do feel that the government purposefully leaves that extra room. It is benefitting someone, somewhere; morally or not. It’s like running a business. After finishing your bookkeeping and accounting, a following question of “Where did the money go?”
2) Extend Fed Reserve to other important financial institutions. – I like it. Along with watching the cash flow closely, sharing access to the Reserve will, in itself, develop its own system of checks and balances. Of course, theres always possibility that all the institutions are shady; but, let us not be pessimistic.
3) Carefully examine all financial affiliated institutions. – Yes. Figure out where the money goes and doesn’t go. There is not exact way to determine how the market or individual spending will fluctuate. I think that if we study what’s happened in the past, listen to these amazing economists and their opinions, watch for possible sneaky financial affiliates, and try to go back to simple math, then, we might actually allow room for stabilization.
After participating in these class discussions, I feel that there are so many economists with great solutions to financial crisis and stabilization. I think the issue is a matter of how to get our government to perform for long term good of the country, rather than just pleasing people for immediate votes.
Jenny Truong
I completely agree with Minsky, history does tend to repeat itself. It continues to repeat itself because people fail to examine the past and recognize the signs for the future. There is a great deal that can be learned though from the Great Depression of 1929 and the housing market crash of 2008, and if we apply what is learned then we can help to ensure that history does not repeat itself, or at least weaken the blow of what’s to come. I also believe that we have learned for these experiences and won’t have those same issues repeat themselves. But as our economy grows we need to look at other ways it can fail in order to prevent further reoccurrences, or at least be prepared to recover from them incase another crisis does happen. In order to prevent history from repeating we must learn from the history we have.
Minsky’s ideas are good in theory. However, I believe that they will never be achieved. First off, I believe that there is transparency between the FED and other banks. What’s not transparent is bank to bank and the federal discount rates. I don’t believe that will be achieved because there is honestly no good reason to know when a bank borrowed from another bank. In the end, they all have the required amount of reserves, and if they don’t, they borrow from the FED, which is transparent. Second, I do not believe the FED has the means to regulate the banks that borrow from it. It’s an issue that we only have 12 banks for 50 states. Then, to know every transaction that’s happening in each bank and their counterparts is completely unreasonable. Banks make overnight loans to each other. It takes days to clear a check. Though all these ideas sound nice, they aren’t really realistic.
I agree with Minsky’s theories to stabilize the economy. There are so many fluctuations that it is important to look for a way to normalize it. By having greater transparency of the Federal Reserve, extending access to the discount window, and examining financial institutions, stabilization would theoretically be possible. These three theories would allow for other benefits as well such as better preparation for future financial crisis through greater transparency among others. It is obvious that better procedures would help, yet there is always going to be people who ignore them for their own personal benefit. I believe that because of the large size of our country, and therefore our economy it would be difficult to stabilize all aspects of governmental procedures and the economy. While using short term financing for long term projects causes a lot of instability and should be used sparingly like Minsky suggests, it would hinder the short term gain within the finance markets. So even though Minsky’s theories would help with stabilization in the long run, it would be very difficult to stabilize the whole economy and most likely history would continue to repeat itself.
-Catherine Hoffman
Reading this article, I have come to agree most with his theory about closely watching all financial institutions. I agree that we should watch all components that make up the federal reserve to see exactly where and what the funds go to. Obviously, the financial state of the USA is very poor. We are reaching 20 trillion dollars in our national debt, and in the past 8 years, we have spent the most money in the history of the country. I don’t understand why we spend money we really don’t have. Obviously there is a problem financially and the pieces that make up the Federal Reserve. By closely examining everything, and making smarter financial decisions, we can maybe help out the government, which will ultimately help our people.
History does tend to repeat itself if no one learns from their mistakes.Through evaluating our own economic history we could find the means of stopping the dreadful outcomes of 1929 and 2008 again. Minsky’s three pointers could be helpful pointers in preventing the destabilization of our economy. However, I don’t believe that these will ever be put into action as he doesn’t really give how one would go about do so.
Minsky’s theories are great for what they are: theories Minsky states the obvious in that transparency in corporate and government transactions, access to Fed Reserve discounts for institutions responsible for market liquidity, and a better understanding of the financing of “fringe” banks would all aid in the prevention of market destabilization. However, anyone can state the obvious and he doesn’t even do so in a viable way. He gives three “recommendations” that are meant to help the economy but they have problems. For example, wanting transparency between banking industries is a nice thought but he doesn’t give any way to achieve his idea. It’s like trying to bake a cake without instructions, your just gonna end up with a mess.
Looking at economic trends over the course of the past several decades is a great way to predict problems that may be on the horizon for the current American economy. Particularly with the lenient lending practice for mortgage loans that led to the housing crash in 2008, I agree with Minsky’s point that there needs to be more transparency of cash flow between the Fed and banks, and between banks and the people taking the loans. Transparency would lead to more accountability that would hopefully allow people to notice an impending financial crisis before it was too late. This requires a lot of government oversight into specific lending processes, which may make some economists uncomfortable, but an economic crisis like this could not have been prevented by an Austrian economist perspective. Lenient lending needs to be regulated by the government and not just be left alone to naturally run its course. Minsky also distrusted speculative lending and knew that it could lead to widespread economic crisis. Giving people loans who cannot afford to pay them back is a dangerous process that banks should have predicted but were only concerned with the short term gains from interest payments.
I totally agree that history tends to repeat itself. History repeats itself in regards to economics and in many other ways. There are always going to be fluctuating booms and busts in the economy because the nature of the economy is to stay around a middle point or equilibrium. I agree that economic growth is many times masked by illogical evaluations of assets and a great amount of leverage borrowing, which could result in systematic failure or debt-deflation. I also agree with Minsky’s ideas that aim to minimize economic destabilization. There should certainly be more transparency between the Fed and member banks and fringe banks to make sure that they are both on the same page when increasing or decreasing the supply of money. There also should be a thorough examination of all financial institutions because it is important that financial institutions are running correctly and we need to make sure of that.
Matthew Macora
Within the economy, Minsky believed that history tended to repeat itself and he focused on ways to prevent people from making the same mistakes that others before them had done. Minsky was very focused on finding a way to fix and prohibit market destabilization in three ways. First, there needed to be a way to make cash flow at the ideal rate in the economy by helping the Federal Reserve and banks that work in accordance with them to gain a better understanding and work better together. Second thing was to make it easier for to gain access to the Federal Reserve’s discount window, and third, was to ensure that the Federal Reserve was keeping tabs on how other banking, financial, and investment firms finance their operations and to figure out when help might be needed from the Federal Reserve. I, personally agree with Minsky’s plan to fix and prevent market destabilization. Maybe when they are implemented, the economy may thrive.
-Sarah Fulghum
I do agree with Minsky behind our economic structure. History tends to repeat itself as we saw after the great depresions we found ourselves in another mild cause of it back in 2008. Minsky believed that history tended to repeat itself and he focused on ways to prevent people from making the same mistakes that others before them had done. There are always going to be fluctuating booms and busts in the economy because the nature of the economy is to stay around a middle point or equilibrium. Obviously there is a problem financially and the pieces that make up the Federal Reserve. By closely examining everything, and making smarter financial decisions, we can maybe help out the government, which will ultimately help our people.If the banks and government’s spending was more transparent to us There would be less of a roller coaster economically for the country as a whole in turn affecting the world market in a positive way.
It seems as though Hyman Minsky was an extremely intelligent man, having devoted much of his life to formulating hypotheses regarding the sources of financial destabilization within an economic system. Minsky believed that there were numerous factors which standard economists failed to consider whilst formulating policies for the economy, a few of these being factors such as time, money, and uncertainty, which are inevitably faced in the daily life of nearly every citizen. With the ignorance of these simple factors of human nature, alongside the majority of the operation of financial markets being in the self-interest, the undermining of economic growth seems to be inevitable. I believe that the theories proposed by Minsky are extremely intelligent and plausible; he believed that short term financing should be used very sparingly to finance long term projects, that there should be a greater level of transparency among banks, and that financial institutions should be more carefully monitored. These all seem to be logical proposals that would enhance the economic security of every citizen in the United States.
I agree with Minsky. I have stated before, that I never found myself interested in economics in the past and I have been searching and reading a lot lately to figure out what perspective I even have on the economic theories. Minsky’s ideas sound like the right track to me. Fluctuations are definitely a normal aspect of the boom-bust cycle and we can always learn from history so that we can prevent the bad times from occurring again and focus on economic growth and stabilization. I agree that models don’t necessarily apply to our type of economy in the fact that they don’t account for time, money, uncertainty, financing of ownership of capital assets, and investments. And these are real factors. We need to look to the past to learn how to prevent economic crashes from happening and then implement the solutions that could prevent them.
I completely agree with Hyman Minsky’s theory to stabilize the economy. It is important to find a way to stabilize the economy as it fluctuates so often. Having the Federal Reserve be more transparent through allowing access to the discount window and examining financial intuitions would allow stabilization to be possible in theory. Not only would that allow for stabilization but also would allow for preparation for the future, especially future financial crisis. However because the population of the United States is so large it would be hard to stabilize the entire economy. I additionally agree in Minsky’s believe that some economists ignore certain factors that are important to daily life, such as uncertainty, money, and time, when forming economic policies which could be really bad for the the economy. I agree with many of Minsky’s theories including the idea that short term financing for long term projects causes instability.
When first learning about the economy of the United States, I do remember learning about the viscous cycle of the economy rising and falling due to things like inflation and as the article said “…irrational valuation of assets and greater leniency towards leveraged borrowing.” I do also believe that history tends to repeat itself, and I believe the reason for that is that as we progress as a society and as a world even, we tend to the have the same feelings and emotions about change in any other time. Anyway, I do agree with what Minsky was saying in his lifetime about economics and what the people and the government need to do in order to prevent the depressions like in 1929 and 2008
Minsky was right about these ideas. I believe that government intervention is what, to a large extent, causes market failures. Even worse is that the government is the one who fixes its own problems (or tries to at least.) Minsky had it exactly on point regarding his ideas about the government not being so quick to dump money for “quick fix” crashes so to speak. The market will recover as it does, in cycles. I believe and I think Minsky would agree, that if the government deregulated Wall Street and during a time of economic crisis, diverted resources into long term goals, the nation would grow stronger than ever and more quickly than ever. Interesting article.
Minsky makes a valid point when referring to history, in that yes it tends to repeat itself and therefore we must closely examine economic patterns to try and prevent the same problems to reoccur. His theories could provide a positive outcome to the economy. However, the biggest problem would be to get transparency between the Federal Reserve, member banks and fringe banks. This is because each party although intertwined with each other in certain aspects, wouldn’t want to be more transparent. It is easier for them to remain the way they are since the market hasn’t crashed again yet. Unfortunately, sometimes the mindset seems to be why fix it if it isn’t broken. Now carefully examining all financial institutions is also a great theory, however who would be in charge it? Who would they fall under? It can’t be the government since the Federal Reserve has to be a separate entity. Therefore, it would be hard to ensure the examination of financial institutions and implementing change across the board.
I do agree with some of Hyman Minsky’s theories, yes we from the past in an economic stand point we see history repeating itself with booms and busts cycles. However over time we have seen a change in the frequency of booms and busts referring to larger periods of growth before a decline. One would think that yes with this trend in cycles that over time we would place better policies and regulations to lessen the negative economic effects. Minsky’s financial instability hypothesis which describes that debt accumulation in the non-government sector pushes an economy into crisis just like the subprime mortgage crisis of 2007. I believe that all debt even government debt has its negative effects and leads to the bust cycle in our history. I do believe that better transparency with the Fed and banks along with careful examination of all financial institution may help curb the effects of the bust but a larger number of changes will be required in terms of regulations and policies to prevent future declines in economic welfare.
Jaimin Valabh
In the article, Minsky suggests that sometimes government intervention and government policy can spur economic fluctuations. As stated in the article this financing can have destructive effects on the economy. In my opinion, the government needs to stay out of the private sector in general instead of interfering by creating regulations and implementing policies. The Great Recession in 2008 was greatly caused by government policy when the government attempted to make it easier for people to finance homes, so that many citizens could achieve their dream of owning a house. The government had the banks lower their credit standards so that it was easier for people to take out loans for houses even when they could not afford it. Government policy then tampered with the mortgage backed securities and made it so that what would normally be considered a high-risk mortgage became weighted the same as a low – risk mortgage. All of this combined with copious amounts of government financing led to a housing bubble which eventually led to the housing crisis which crippled the American economy. This is a prime example of why the government needs to stay out of the private sector.
– Thomas Hamner
I do agree that history tends to repeat itself and it is important to implement certain strategies and learn from past mistakes. I like Minsky’s approach on macroeconomic stabilization because i think that it is right to view banks and the government as “Cash flow- outflow entities.” We have to be able to constrain certain things. Having a laid out plan usually works in favor of the subject which i mean that complete communication between entities is necessary. Minsky seems to have had a nice layout on how to stabilize the economy and to try and not reenter time of depression.
Minksy’s theory that history(economic) will always repeat itself, has built some validity in the past century. We saw the American economy crash in 1929, and come quite close again in 2008. The rate at which we borrow and loan money with producers and consumers, is a decent sized portion of the existing problem. Therefore, Minsky’s idea of “Cash in-Cash out” for all government banks and institutions gains some ground. His positions on government involvement in the private sector of the economy I have to also agree with. The government has no business preforming billion dollar bailouts, and the greatest teacher for large companies to improve, is failure. This is partly why the housing market also came close to crashing back in 2008 as well. The government was sponsoring mortgage loans to individuals who couldn’t afford them, all in the name of fairness. However, this idea quickly backfired as these people got approved for mortgages they couldn’t afford. These government interventions although meaning well, bring down the economy.
Minsky’s theory explains the repeating formation of the economic expansion that occurs repeatedly (boom-bust cycle), which is a key characteristic in today’s capitalist. Let me start off by saying this is a very good article on the boom-bust cycle theory. I agree with you where it is mentioned that the US markets should shield themselves in order to raise the economic well-beings and lower the damage towards the US financial markets. Shows a great example of how the doom repeats itself throughout the balance sheet recession. Again, this is a great theory by Minsky, but wouldn’t the decrease of short-term loans affect the economy?
-Jaebets Jean
I appreciated this piece because before this I did not know of the revolutionary work of Hyman Minsky. The boom-bust cycle of the economy is an ongoing pattern that was finally able to be defined and identified through his analysis. Not only do I see this cycle in the economy of the United States but even in other 1st world and up and coming countries such as the BRICS nations. His studying was not only for the purpose of providing a greater explanation of the past, but rather, an optimistic view of the future by displaying what to do and what not to do. His key points for the future of the economy and its success are surrounded with limitation and caution but in a manner of positivity. A greater role played by the government in our economic standing can possibly reduce the faults that lie beneath horrors of capitalism but at the same time can be tricky as it can strip the flexibility of many in their economic ability to grow and rise.
I, Will Aclin, agree with Minsky in the sense that federal government should not issue as much short term treasuries to finance the government and federal projects. It can issue some, but an over reliance can be a major problem. When interest rates start to rise and the short-term debt matures and has to be refinanced, it will be refinanced at a higher interest rate, meaning it will cost the government more money. If the government would have issued longer term debt to begin with to cover these long-term expenses, the fact that interest rates have risen wouldn’t impact the cost, as the interest rate would have already been set at the lower rate previously.
When the government finances interstate highway projects, military projects, and the like, that are long term projects, given the fact that tax revenue comes in annually and will take years to cover the cost of the projects, it shouldn’t finance the projects with short term debt. There will not be sufficient funds received in time to pay the debt back and therefore the debt will have to be refinanced. If rates increase, the costs go up even higher, meaning a longer payback time due to the extra interest expense.
At the same time, the government should know by now that printing too much money or issuing certain regulations will fuel excess spending and inflation which will lead to higher prices that the economics warrant and thereby create a bubble (like in the ’90’s or 2008). If the government would look more long term, versus short term, it could help prevent the boom and bust economic trend and even out the long-term growth line. But the government is a big instigator and also fluctuates between boom and bust. For instance, the government passed the Housing Act of ’92 and encouraged lenders to loan more and more to low income individuals so that home ownership was available and enjoyed by all. They encouraged low interest rates. Housing prices started to rise as people could afford more expensive homes, and using an adjustable rate allowed them to buy even more expensive homes. Home prices continued to rise, and people were flipping houses in the really hot markets. This was the Boom created by the government, who wanted a boom. Then came the bust. Those that the government sought to purchase homes that really couldn’t afford it, couldn’t pay their mortgages. Banks had a lot of bad debt on their books. The federal government then went into Bust mode, by passing Dodd Frank and requiring the banks to mark-to-market all the loans, meaning that the banks loans wouldn’t be properly collateralized and therefore they would have to right off the debt. Once the banks had to start writing off the debts, the banks found themselves and inadequately capitalized under the banking regulations. This caused more problems and the banks then had no money to lend and Dodd Frank made it very hard for most people to borrow money, assuming the bank had money to lend. Therefore, this led to the housing bubble to crash and the economy took a lot longer to start to grow once again.
If the government would not do some of the things it does, with seeming short term views, the market would be in a better overall position. So, just like the government should fund its projects and long-term costs with long-term debt so they don’t get caught in times when interest rates rise, it should also act in way that takes the long-term effects on the market into account, studying the market over the past two hundred years.
Minsky’s ideas sort of remind me of the checks and balances system of the three branches of government. For example, the recommendation from Minsky to start, “Carefully examining all financial institutions, and in particular those financial institutions that can be characterized as fringe banks such as real estate investment trusts” could have helped prevent the 2008 financial crisis. Speculative financing was partially created by the Community Reinvestment Act, in which government wanted financial institutions like commercial banks to help meet the credit needs of the communities. Giving mortgages to people who aren’t qualified to get one obviously will lead to these mortgages being unpaid. The Board of Governors of the Federal Reserve System should be given the right to cut ties with banks that make stupid and detrimental decisions. This leads into another recommendation of Minsky which was to have, “Better cash flow examination procedures” The Board of Governors of the Federal Reserve System should also be able to keep track of where the money that is lent out is going and how it is being used. Minsky’s last recommendation to start, “Extending access to the Federal Reserve’s discount window to primary securities dealers and important financial intermediaries” could have, if the governments rules and regulations weren’t so strict on lending, helped the economy to recover faster after the financial crisis of 2008. Minsky’s ideas are a great way to help stabilize the economy and keep everything in check.
Minsky addresses a promising option towards moving forward in changing the way we are used to doing things in our economy. His ideas open doors into political powers that range between national and international governments jumping into managing economies better. Depending who you ask Minsky’s ideas could bring together those that support big government and those that do not. Financial Markets have to be examined in order to give us a realization of where we are moving forward to. Political, social and legal institutions can help pursue these ideas about having transparent examinations, limits of authority where needed, and being able to pursue a clear view of financial institutions in order to make better government, not as much bigger. Economies run on normalizing current inflation and employment rates, however; Minsky’s ideas could help governments have better views of how to normalize these areas in the economy. Plenty including myself might not jump onto the idea right away, because there are always those opinions of allowing the economy take a natural journey, however; the government will not stop trying to bring stability by pursuing larger agenda’s – therefore one can choose to be against and push a concrete wall or help make sure big government is not always in control.
History absolutely repeats itself. This phrase can be applied to so many things it is unbelievable. We, despite our teachings, repeat ourselves so much it is scary. People think that they can do it this time better, but end up just repeating it over and over again. For Minksy’s theories, I agree with a lot of them. It makes a lot of sense to me when I read over them. I get this feeling of balance and a healthy amount of all sides when I read it. As others have said as well, checks and balances definitely take a role within his ideals.
Fluctuations in the business cycle have historically repeated itself. 1929 and 2008. Going from boom to bust was the inspiration for Minsky’s research on financial crises, where he advises hedge financing is the safest most practical form of borrowing, while speculative and ponzi are more risky. Though all debt has a negative impact, the trouble comes when firms limit themselves to hedge financing and the temptation to taken on more debt is irresistible. Banks add fuel to the fire when debts are being paid and they loan more money and lower credit standards. Economic stability breeds instability. Busts can be mitigated through transparency,
I can certainly agree with Minsky’s theory and his way of looking at the economy. I think his view is a little different than most of the ones I have recently read about because he offers ways to prevent the problem before it even happens. The economy will always fluctuate but the important thing is that when it is down, it is not prolonged more than it has to because that’s when it gets more difficult to fix. Minsky’s idea of destabilizing market and recommendations are simple and just gives us a tool to better classify banks and make sure they are lending to the right people to prevent an economic downfall. Better cash flow procedures is basically just saying take a closer look of where the money is going and where is it coming from. More careful considerations could prevent problems before they arise and I think that this proactive approach could save banks a headache. Another one of his recommendations is carefully examining financial institutions such as real estates investment trusts. This one is big in my opinion because in general real estate is such a up and down market.
I found this article very interesting, the history of the market really does tend to repeat itself through trends and events that seem to reoccur on a time scale. Minsky was a very smart man and I admire his knowledge on the subject of our economy. Minsky wanted to destabilize the market, and he believed this could happen through 3 steps. He believed that better cash flow examination process, extending access to the federal reserves discount window, and carefully examining all financial institutions would be the key to a successful destabilization of the market. His ideas that this is what could help destabilize the market is kind of outlandish due to the unorthodox approach he was taking, however many people admire his approach and he Is seen as a very well known and respectable economist throughout time.
Minsky focused on explaining financial crises and introduced “Stability Is Destabilizing”. He claimed that when corporate cash flow rises beyond the ability of paying off debt, the debts in return will exceed what borrowers can pay off from their revenues, which will result in a financial crisis. That is why banks and lenders tighten credit availability, even if companies that can afford the loans.
In his theory he see s stability is destabilizing and that the financial system swings between points of strength and weakness and this will allow the business process to maintain its cycle and thus the market crashes we witnessed before were merely a part of this cycle to keep the economy running. I strongly agree with this point, however, what if the recession measures taken to boost the economy after a fatal correction are not met with a positive response, will this theory be considered? I do not think so. Maybe we survived almost every major market crush up to this point, nevertheless, will we survive the next one knowing we are in the second longest bull market in history? Time will tell.
I do believe that History follow trends of the past although they do not always have to repeat, in some cases you adapt and change to what previous, maybe misfortunes or mistakes that might have occurred at a point of economic destabilization. There are patterns in the economy that we can follow and take make an attempt at action to stabilize our economy and avoid incidents like 1929 and 2008. I agree with Minsky’s points on that we need to carefully examine and monitor all the financial institutions, with the added attention to detail in cash flow from the federal level down, and understanding how commercial banks finance, there would be a much more stable and controlled outlook on the market. However actually attaining this point in our economy would require severe changes within our current cash flow and Federal Reserve system and may not begin to correct itself for sometime.
Sean Kelley
Stating that history is bound to repeat itself is an accurate statement as we have seen ring true in many facets of out existence where it be economically, politically, and socially. The business cycle is clearly cyclical and some what predictable. But, the ability to stabilize from the super highs and the super lows is key to the success of the economy. Minsky lays out a clear recommendation to follow, which when read carefully gives the ability to increase cash flow, investments, and the availability for banks to lend money which will help increase interest rates. Furthermore, allowing banks to make more investments. Having a monetary stabilizer that works is like having an ace in the hole, you don’t always have to play it until it necessary to ensure the desired outcome.