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.
When reading that economic growth can be undermined by irrational valuation of assets, it only made me wish that we were not in a Keynesian world, but an Austrian Economics world, where the markets would find the true value of assets. Minsky’s ideas on how to stabilize the economy all seem straightforward and I like the idea that short term financing should be used sparingly in order to finance long term projects. Knowing that the market is cyclical and goes through boom-bust cycles, it only makes sense to help finance long term projects that can be more susceptible to the cycle. His idea about greater transparency regarding the Federal Reserve, member banks, and fringe banks, can help people figure out where money is going and coming from, and it is a shame that we do not see his ideas in place today. In order to lessen macroeconomic instability something must be done, and I think that Minsky offers some good ideas on how to increase stability.
Instability is something that has been seen time and time again where the systemic failures are bound to persist. While ideal, it surely will not be eliminated entirely. However, Minsky believed in mitigation techniques which seem to want to build on three main points consisting of improving communication, increased access to security discounts, and having contingency plans. Each of these have one major goal in common which is to enable the economy a way to stabilize itself whether it is a crisis situation or even when it is operating “normally”. I agree to the extent that these ideals are what we as a society should examine on the basis of their goals in moving forward, economically speaking. If instability is doomed to repeat itself, it seems as if there is an ulterior motive in not using similar strategies to mitigate it; Minsky is simply pointing out mistakes from history and has provided the first steps towards tackling it.
With the open market, many people expect fluctuations with rising and falling on a daily, weekly, monthly, and yearly basis. Whenever the market enters into a correction period, it will right the ship. Market fluctuations are vital to the market as a whole. Minksy believed that the destabilizations could be avoided or at the least mitigated by allowing greater communication between the Federal reserve and their member banks, possible contingency plans for banks and financial institutions and increased access to security deposits. These are possible solutions that Minksy formulated while studying the history of the market with its ups and its downs most specifically 1929 and 2008. I agree with the idea that increased communication into funding techniques is vital to sustain a healthy and prosperous economic relationship between larger financial institutions and their smaller counterparts.
When the economy goes through a recession people view it as a failure or a mistake, rather as a self-regulating mechanism, because such market realignments result in hardships such as unemployment, wage cuts and reduced consumer purchasing power. Society views a recession as a problem to be solved, but cannot come to a consensus on the solution to the problem. I do not like recessions, but do believe they are needed from time to time to keep the economy efficient. They act as a mechanism to slow down growth and production when they reach points of unsustainability. I also do not believe it is humanly possible to create an economy 100% free of recessions. However, I do agree with Minsky that steps can be taken to make an economy relatively stable. Some recessions that are not needed can be avoided and recessions that are needed can be softened. I agree with Minsky that Federal bank and private lending agencies should be honest with each other. This will prevent them from distorting the value of the money supply by over or underreporting how much is available in the economy. It will also help them make wiser investment decisions by preventing the circulation of incorrect evaluations of the risk of those types of investments. I would also expand this principle to other financial institutions and the public. Lenders sometimes downplay the interest rates on loans or encourage people to make loans they probably will not be able to afford. Investors sometimes exaggerate or underreport the risk and/or rewards of investment options. Recessions can be caused when too many businesses lose on major investments or when investors lose their money due to market crashes. Honesty on all sides may be able to prevent recessions caused by these events. In the event of an unavoidable recession, it may reduce its impact by preventing people from risking, and loosing, as much as they would in a dishonest environment. Honesty in the procedures of how financial institutions work may even inspire people to find more efficient, safer methods of running them. I understand how offering the Federal Reserve discount window to securities dealers and financial intermediaries would lessen the effect of recessions. If these people acquire money at cheaply at lower interest rates, they will loose less if the economy crashes than if they acquire high-interest, expensive money. Lower interest rates for lenders also mean lower interest rates for borrowers and investors with the same effect. Minsky argued that the Federal Reserve should be aware of the state of fringe banks because the government is financed by them and fringe banks should be aware of the state of commercial banks because they depend on them for money. If the commercial banking system collapses, then fringe banks will not have access to money and will eventually go out of business. If the fringe banking system collapses, then the government will lose access to money and have to make budget cuts. This scenario will cause a decline in GDP, resulting in a recession. If the Federal Reserve, fringe banks and commercial banks monitor each other and have honest communication, then they can work to keep each other in a healthy state of operation. This might prevent an unnecessary recession from happening entirely. In the event that one system collapses they can work together efficiently to resolve the problem, and the recession, before it causes another system to collapse.
I agree with Minsky’s point of view on economic prosperity. Looking back at history, one can definitely predict that in the same way we have experienced crashes and depressions we will again in the future. Minsky’s view of preparing for that future resonates deeply with my thoughts. Everyone wants a stable economy filled with prosperity for the present and future; however, we can’t deny there are many things we could do in order to prepare and attempt a less risky economic future. The idea of opening up the markets makes sense in that it will raise awareness for the issues at hand. Our goal should be to prepare for whatever the future brings, and the only way we can do this, I believe, is by educating ourselves on what the past trends have been in order to not make the same mistakes. Moreover, we should be looking forward and making short-term changes that will be able to fix problems in the long run.
Minsky mentions that the ability of a company to honor the debt process. Many companies can finance investments through their retained earnings, internal funds and external funds. If for some reason the retained earnings become inadequate then the company itself becomes more reliable for the external and internal funds which usually messes with the balance sheet for the company having down and up falls. The developmental strategy is known as a dependable strategy on the increasing usage of foreign usage and is no where near being feasible. In the economy, the development is a major subject about the policy known as “one size fits all”. In other words a very common problem for the growing economy is the lack of complication and the different structures that are dependent on the primary goods and the low prices of elasticity for demand. Many of these common things are what is affecting the ability of emerging economy to face the downside and upside of the policies.
Minsky makes some pretty good points, I’ll admit. History will certainly repeat itself as it always has proven itself to. And rather than focusing on long run changes Minsky seems to instead center on small short run fixes and tweaks to operations. Definitely the increased communication between levels of the market could benefit in many ways, either better judge where the economy is at how corrective measure are performing or act as a better understanding point to improve overall efficiency between banks and the market. Education of the roles people play in the economy will also be a great improvement in larger firms acting with smaller firms.
I am a true believer when it comes to the history repeating itself. For example, the Great Depression in 1929 was similar but not as severe as the financial crisis in 2007 and 2008. The market has been unstable through our history as it is impossible to predict and constantly fluctuates. Hyman Minsky came up with a theory to help the market in which for the most part I agree with. I agree with Hyman Minsky’s argument that market destabilization can be alleviated by: improving cash flow by creating a better line of communication between the Federal Reserve and members of banks and fringe banks, extending access to the Federal Reserve, and carefully examining all financial institution. I believe that establishing a clear line of communication between the Federal Reserve and members of banks and fringe banks can help eliminate any financial issues. I believe that with Hyman Minsky’s theory, we will be prepared to prevent or solve any future issues such as the Great Depression in 1929 and the financial crisis in 2007 and 2008.
Minsky’s belief on market destabilization seems like a good theory, but again it’s just a theory. The 2008 recession is obviously an exact example the great depression repeating itself. Greater transparency and carefully dissecting check cashers, car title loaners, even pawnshops and other fringe lenders would be ideal for our economy. We’ll be able to closely see what their agenda/operations are and whether it’s helpful or harmful. In doing so there will be a better management of cash flow. His ideas all tie up and present themselves by reducing issues that keep the economy from moving forward in a stable manner. But then again it’s just a theory.
Today, “Keynesianism” and Minsky’s insight reveals a more managerial intervention to economic policy from the government. Minsky grew up during the Depression and eventually developed a financial instability hypothesis, which examined the stretches of business cycles and how prosperity often lead to another crisis. Communication is key to stabilize the market’s fluctuations. Additional research revealed that Minsky’s views would argue for constant transparency to avoid undermining activities, such as increasing consumption ratios and investment spending, which has caused financial bubbles to burst repeatedly. With this, I do agree to the idea that a more transparent Federal Reserve and the various banks would lend legitimacy and accountability. If inflation and deflation are avoidable and correlate with capital movements that have relatively negligible impact by the real economy, then honesty and stability should be promoted. The late Hyman Minsky painted an experienced picture that revealed the relationship between investment and money, how debt and financial innovation are dangerous and further economic growth will rely on transparency for all financial institutions.
We all know that the economy is unstable because we have recession and expansion periods. The economy has many factors, some of which are humans and nature. One major problem that the government and economy have is massive sizing in scope. This means there are millions of employees, and it’s hard to manage them and make the best decisions. Another problem is information aggregation, which is a communication problem because there is a massive size in scope. it is difficult to convey information from bottom layers to top layers. Minsky’s opinion is a good way to start fixing the problem of communication. As his view focuses on allowing greater communication between the Federal Reserve and their member banks, possible contingency plans for banks and financial institutions and increased access to security deposits. This is to have a transparent Federal Reserve so that they can be held accountable and legit.
The economy is itself a history of cycles that repeat themselves again and again. Minsky had a theory. He believes that in a free market where the government and financial institutions wield power we will have the tendency of corrections and fluctuations in the markets if there behavior is not the ideal. This creates the fluctuations and corrections in the economy or economic cycles, so this movements in the economy are not natural instead there are created by these institutions and I think is the main idea of Minsky. This described by Minsky is because of the bad decisions of these actors. These actors are predisposed to take actions that will affect the economy in the long term by following bad economic decision such as high lending and irresponsible management creating these corrections or fluctuations. What Minsky suggests to be done to prevent these fluctuations and corrections is the following. Minsky, in my opinion, believes in the free market and does not believe in regulations so much. What Minsky believes is that what the government must do is make transparent the actions of the Fed and the financial institutions. Extend access to the Federal Reserve discount window, so that financial institutions have access to more credit. Another that the government keep a close eye on financial institutions and more in the ones that are distinguished as fringe banks. In conclusion what I understand of Minsky’s ideas is that he does not think about regulating the economy, but rather that the government serves as an inspector on the actions of financial institutions and check that they do not do anything that could affect economic performance and create a fluctuation. or market correction.
Minsky brings up interesting points along with methods to correct issues that are currently plaguing our economy. These issues include the constant fluctuations in the economy both in short and long term. Rather than search for a way to ultimately fix the long term constant recession and growth, Minsky instead focuses on what can be done to attempt to rectify the short term changes, which are generally caused by the market correcting itself when it is over valued. Some of the potential solutions to this issue includes making it easier to see the flow of money throughout the country and granting more access to the Federal Reserve’s discount window, among other things. With these solutions, it becomes possible to also rectify the long term fluctuations in the economy as well.
The fluctuations and volatility of the free market is something that I believe we have to live with. I suppose I believe the reward outweighs the risk. I agree that these fluctuations can be mitigated through banks and other financial institutions, but I disagree with the details of the said solution. I don’t believe the government has any place telling private banks and financial institutions how to run their businesses at all. Many would claim what I’m saying to be wishful thinking, but I disagree. I believe it’s in these institutions best interests to keep the economy healthy and thriving. I don’t believe that a perfectly stable thriving economy is successful. “Thriving” is the key word there. Low economic growth is sustainable but no one wants low economic growth.
I find Minsky to be correct in his analysis of some ways to help correct the instability in the United States. It is true there is a lack of clarity concerning the cash flow between the Federal Reserve, member banks and fringe banks; However, they additionally stay a little too close to politics, with more than just a little muddling of interests. Of course, Minsky did not address every issue with the United States’ current economic instability; however, he hits upon a decent number of the issues present. Unfortunately, even with Minsky’s work and revelations, nothing can happen until the politics side of the issue also supports such a move and that could take an awfully long time. However, Minsky also shows there is hope for our economy, that it is possible to reform it and stabilize our economy to help prevent depressions or even some recessions from occurring in the first place.
I loved how this article started this with ‘history tends to repeat itself.” That is so true. The United States does have a history of market fluctuations. From 1929 to 2008, many have suffered hard times and devastation. Americans have a history of spending beyond their means and when things get tough, they get worried, quit spending, and the market goes down. Minsky, a renowned economist from the Washington University in St. Louis had great ideas about how the market can destabilize and we need to expand on these ideas. He studied the economy for many years. The problems and solutions start with us. We need to learn from our mistakes. People need to become more aware and schooled in finances and the market system. I agree with Minsky in that there needs to be certain procedures instituted. All financial institutions need to be examined and reviewed. We must have trust in the ones who handle the money.
This post, along with so many other studies, articles, opinions, and observations we encounter in History and Econ classes, serves as a cautionary overview about market corrections, boom-bust cycles, and the public’s perceptions of them. I believe Minsky was very right to be so cautious of the conclusions being drawn from the models of standard theoretical economics during his time. He intuitively noticed the vast disparity between what economic models of the time were forecasting and how America’s then-economy was behaving. Minsky warned against the foolhardy practice of funding long standing assets with short living debts, he openly denounced speculative financing as being destructive to the economy. Hyman Minsky believed increased communication between the Federal Reserve and all banks would promote market stabilization. He felt that the Fed should be privy to the movement of cash in all banks, whether they be mainstream or more “fringe” in nature. Furthermore, Minsky felt that economic agents, whether a bank or a government entity, could, and should, be used to gauge the flow of money in the economy. His hypothesis regarding financial instability may have come off as avant-garde in his time, but Hyman Minsky can be considered one of the most impactful economists of the twentieth century.
Minsky’s reforms seem like “no-duh” measures. Proper labeling of items is important in any profession or subject, and finance is no exception. Proper labeling, in this case, refers to Minsky’s third opinion, which calls for a close examination of all financial institutions. Transparency is another ideal which Minsky espouses. It is refreshing to read of an economist whose argument does not boil down to, essentially, be rid of / privatize the Federal Reserve and everything will fix itself.
Of course, Minsky’s reforms seek to stabilize the market, making market corrections less severe or drastic. While this could be seen as a good thing for current investors, future investors would not be as encouraged to enter the market. Some may be lured by the promise of the stable market, but without risk, there cannot be reward, and stabilizing the market drastically reduces the risk of the investment, correspondingly reducing the reward. This would drive away investors who thrive on risk.
Open market, many people expect fluctuations with rising and falling on a daily, weekly, monthly, and yearly basis. Whenever the market enters into a correction period, it will right the ship. Market fluctuations are vital to the market as a whole. Minksy believed that the destabilization could be avoided or at the least mitigated by allowing greater communication between the Federal reserve and their member banks, possible contingency plans for banks and financial institutions and increased access to security deposits. These are possible solutions that Minksy formulated while studying the history of the market with its ups and its downs most specifically 1929 and 2008. I agree with the idea that increased communication into funding techniques is vital to sustain a healthy and prosperous economic relationship between larger financial institutions and their smaller counterparts.
History often does tend to repeat itself and we usually learn from past those events. This also happens with economic activity and is seen with the similarity between both the 1929 and 2008 economic recessions. The similarities in economic growth and market panic between both economic crashes prove Hyman Minsky’s hypothesis of Financial Instability. Minsky’s solution to preventing these events of market destabilization included better examination of cash flow and transparency between the federal reserve and banks. This focus on clarity would help any analysis of the current economic state to be more accurate, which in return would keep us better informed of our true economic status. The main focus of Minsky’s solution is to keep a careful eye on cash inflow and outflow relating to banks and the government. Keeping careful track of these economic components would assist in avoiding situations which could lead to an economic crisis. Although avoiding market destabilization in a free market economy seems unlikely, Minsky’s analysis of past destabilization events helped him in putting together his Financial Instability Hypothesis which would help avoiding situations that lead to an economic crisis.
Economic fluctuations due to instability undoubtedly occur and are predicted to continue to arise in the United States with our current system of economics. Minsky’s Financial Instability Hypothesis offers macroeconomic stabilization that would alleviate market corrections; this stability would lower the significant impact on prices, production, interest rates, and the stock market. I agree that this stabilization would be beneficial for our economy because not only would everyone have more faith in the market and be more likely to participate in investing and trading, but also the damage caused by the boom-bust cycle would be reduced. I believe that transparency in cash flow procedures between the Federal Reserve, member banks, and fringe banks and examining financial institutions would create some stability in the businesses cycle by allowing less questionable financing to take place. Minsky’s reforms could help us minimize instability, by being cautious of short term financing for long term projects that often create a harmful bubble such as the housing bubble that influenced the economic crash of 2008.
This article discusses the proposals by Hyman Minsky to minimize market destabilization, and the article discusses the ideology that short-term market evaluations may not be very accurate. To me, this blog really hints at the notion that not everything in the economic world is predictable. The blog mentions the factors in our economic growth which remain unstable and unknown, examples like unrealistic values of goods and large borrowing which results in a recession. Hyman Minsky is so profound, as he was one of the first economists to recognize this “boom-bust” cycle.
Minsky recognized the problem of this phenomenon but also introduced three proposals to help fix it. My personal favorite proposal by Minsky was to begin having better cash flow procedures which would create more transparency between government firms and banks. His three ideas are really to hone in on the way the government is moving the money it has. Minsky seemed to have a very open and honest ideology when it came to money.
I do think that destabilization within the U.S economy is a good thing though. The lack of affirmation in one’s mind when regarding the economy is what drives it. People “think” they know the answer when in reality, there is so much more to the surface.
The US economy has a history of fluctuating between periods of growth and corresponding periods of correction. This is both typical and to be expected of the open market system that the US has. However, there are times when certain market conditions and the activities of financial institutions and the government conspire to make corrections far more severe than they have to be. Minsky believed that the impact of such corrections could be minimized through the close management and oversight of the operations of financial institutions known as fringe banks. He also believed that greater transparency needed to exist between all participants, at every level of the financial sector, from the federal reserve all the way down to these fringe banks. I do believe that he is correct in his assessment that enacting such reforms would lessen the severity of corrections and would allow the US economy to stabilize much quicker.
Minsky’s ideas make sense to try in an attempt to help stabilize the economy. Transparency and guidelines are some of the ones proposed and it is hard to disagree. The unpredictability of economic outcomes at times could be lessened and in turn help success by better knowing where things are heading. Long term projections could be improved with Minsky’s ideas, as opposed to the short term fixes to questions about the economies future. We need to adopt more of the ideas based on past occurrences like in this case due to the fact that history does repeat itself.
Throughout history, whenever market fluctuations correct themselves they have serious effects on the economy. when these corrections occur such as in 1929 or 2008 they significantly impact prices, production levels, interest rates and the stock market.” Minsky’s theories on how to “mitigate” market destabilizations may be unusual but cold prove to be effective one day. one of his theories includes “better cash flow examination procedures” which means “greater transparency between the Federal Reserve, member banks and fringe banks”, extending access to the Federal Reserve’s discount window to primary securities dealers and important financial intermediaries and carefully examining all financial institutions. Although these theories seem to be unorthodox they could serve as “stabilizers” when it comes to inflation and employment.
To start off, I greatly agree with the opening statement, we can see history repeating itself all the time and all around us, and it is absolutely vital when talking about the economy. This is something that is expected in the economy, we expect fluctuations on a regular, a boom-bust cycle. Thanks to this, we can at least be prepared for the unpredictable crash that will most likely come in the future. By learning from our history (like the crisis in 1929 and the crisis in 2008) we can learn a few things. One, we learn what happens when there is a recession, for example, debt-deflation and systemic failure. And two, we can learn, not to prevent the crisis because many times it is unexpected, how to alleviate one, or the consequences of one. We can do this by looking at our history and learning what helped and what did not. I agree that there should be more transparency between the Federal Reserve and the banks, this would help keep some sort of accountability, and most importantly, one should be able to know how their money is being handled.
Hyman Minsky has watched history repeat itself over and over again. He saw that the boom bust cycles were what he conducted his hypothesis from . he has said this for decades he followed three different rules for Minksy being in market destabilization . The 3 things he believed in was that there was a cash flow that was watched by the government the banks and the federal reserve’s. number two will be contingency plans and the last one is to increase security deposits . Theses are what solutions Minsky had thought and made while he studied the history of marketing . I agree with this because these rules are important because if not you wouldn’t have an good economic system.
I think that Minsky’s plans in order to avoid market destabilization are interesting, but ultimately will not happen. I think that the could potentially in some way be applicable as stabilizers, but relying on the big players in financial markets (the Federal Reserve, “all financial institutions”) will continue to change as people and intermediaries are constantly changing, and while one set of policies for the Federal Reserve to be held for accountable could work, there could be change in the people involved, and the market would likely be destabilized again. Ultimately, it also should be noted that instability is part of the typical boom and bust market cycle, and while it is definitely volatile, that doesn’t mean it is always a bad thing, and can encourage innovation, so even while Minsky’s theories are an interesting way to analyze the Federal Reserve and big monetary players, without these upturns and downturns, we would likely be stagnant in terms of innovation and creation of new markets, as we would have no need to do this if the market was stable.
What are my thoughts on the discussion? Well I believe that history does in fact tend to repeat itself, thats why it is called trial and error. This is so that we can learn from our mistakes and improve or change on what we did, so that something like the past can be avoided. From what Minsky mentions in the post, the ideas about the reforms seems to be a “no-brainer”. I believe it makes sense to try to properly label things for what they are, and to minimize government involvement than to let them try to create new policies in which they have control over regulations. This is important because in order to not have another housing crisis, we would have to keep the government from creating a policy which would mess up how mortgage back securities are ran, thus creating a housing bubble which could lead to another depression. Not only that, but having a nice plan to stabilize the economy is just what I feel like we need in an fluctuating economy like the one we live in.
History repeats itself in economics this article starts off. Hyman Hinsky is really incredible being that his observations were what led the way to Financial instability hypothesis. This article states that his main ideas to deal with market destabilization could be mitigated by
-Better cash flow
– Extending access to Fed Reserve discount window to primary security deal
Etc.
Overall his ideas do make sense to me. Especially the part that requires banks to be viewed as inflow-outflow entities, this would solve many issues. It is a bunch of information to read about, but his ideas and his viewpoint do make sense in improving the economy.
Minsky had some great ideas about how to make our economy more stable. because one of the most risky things you can do is invest in a economy that is unpredictable. When it comes to the economy there will always be correction in the economy because that is its process it follows a cycle it goes up and it goes down. But lets say that the united states go threw one of the negative corrections Minsky is giving his advice on how the united states could limit the damage to the economy. Minsky first point about cash flow is probably the most important thing you can do. If you can allow the federal reserve to be able to lend money at a faster rate to these companies to help them stay a float while they wait for the economy to recover then you can minimize the damage and be able to somewhat control the job loss in that economy. second of all there shouldn’t be regulation but you do have to be able to monitor these financial institutions to make sure none of there assets are over valued because that can lead to a lot of destructive to the economy.
I do agree that banks should all be transparent from the federal down. I also agree that the the government should be keeping a better eye on the banking system to see how they are receiving the funding and what they are doing with their funding. That is our money they are in control of, and we should know what is happening to it. I feel if the market knew where their money was being invested in, they would not freak out as much during a recession. I feel the reaeccionary period is needed to help allow more opportunity to enter in at lower cost with a high reward. While keeping the reaeccionary period confined to a certain period of time would be wise, lessening the blow would not help new comer to the market as much as a complete drop.
It seems that having a big and famous name does not help to be hears. Minsky clarifies how history repeat itself but no one pays attention to you even having a big name or being an economist. Another thing he mentions are economic models, how they cannot be defined by time, money uncertainty, capital assets or investments. I would also add that they cannot be imitated by any other economy like is the case of Mexico, who tried to follow the one of the US and it is not working. The three-main points of Minsky, are reasonable and valid but the actions of government and the economy are far from them. The Federal Reserve, banks and fringe bank even being in constant contact, their information lacks transparency between them. The second point in my opinion implies more control from the government, I would not have a problem with it if their role in the market could be define and not influence by the big corporations. In an Austrian mind, more access for the federal reserve will be a NO. Finally, the third point. Yes, pay attention to banks and how they operate, but again government at times ignore laws or create laws that benefit the banks like for example how they got rid of the Glass-Stegal act and create Commodity Features, etc. Again on what side the government is?
I like what Minsky said about the models of his time couldn’t be applied to the US market because too many variables were missing from said models. Minsky’s knowledge of economics and the ideas he proposed shows his wisdom of how to deal with the different economy present in the US that not many people of his time believed. Minsky’s speculative and Ponzi financing beliefs being the foundation of his proposed reforms was very insightful as to what was going through his mind at the time of creating said reforms. Most economists agree that fluctuations in the boom-bust cycle are necessary to spur economic growth and continue on the trend line of economic stability, however, when these fluctuations got really bad negatively, Minsky’s proposed reforms could drastically help the stabilization of that fluctuation.
I agree that when history repeats itself, and the economy and market is changing this will for sure have an impact in many things. Minsky’s suggestions about preventing market destabilization are very important to emphasize. Most importantly, his suggestion about having greater transparency between the Federal Reserve and banks and having careful examination of these institutions. In order to prevent “history from repeating itself”, having regulations between the banks and the Federal Reserve is essential. If the bankers from the 2008 crisis had been watched and restricted by certain rules or regulations, they wouldn’t have given loans to nearly everyone in order to meet the investor’s demands for more mortgage-backed securities.
There were plenty of times while I was growing up, I’ve heard that history repeats itself after so long. But to see it in an article dealing with economic issues and theories, made me rethink much more about what this market could lose. And yes I do believe that their could be better cash flow between certain banks. Even if society don’t understand how important it is for banks to stay fully engaged with the Federal Reserve and control employment without having too much inflation. But overall these problems that banks are facing should be priority so the economy would not ever fall apart again in the near future.
I agree with Minsky that the economy is a history of cycles that is in a constant, neverending loop, and also that history repeats itself. For example, the market crashes of 1929 and 2008. Our economy constantly goes up and then back down again, over and over, and it’s been that way for over a century. Minsky studied the boom-bust market cycle over his whole life and developed his Financial Instability Hypothesis, which he gave his assumptions for the inevitable destabilization forces. Minsky’s plan to fix this and stabilize the economy was to implement better cash flow procedures, extend access to the federal reserve’s discount window to primary securities dealers and important financial intermediaries, and carefully examine all financial institutions. I agree with Minsky that those could be the keys to help stabilize the economy, however, I don’t believe we should integrate them. We can not predict the future of the economy, it is better if we learn from our past mistakes and fix them ourselves, rather than trying to have the government interfere.
Before this article I had never heard of Hyman Minsky, and I would have to say after having his hypothesis on Financial Instability, I would have to agree with him. I believe that with greater transparency between the federal reserve and banks that it would help more to stabilize the market. Minsky’s views on the market and its forces is unique and something that I have not heard or read about. I do not think that instability will ever be one hundred percent eradicated, but I do think that we can limit the instability that a market and its forces suffer from and Minsky’s Financial Instability Hypothesis. With history soon repeating itself with the housing bubble maybe putting his hypothesis to the test would be beneficial in limiting the instability that is about to come with the recession. I believe in Hyman Minksy’s unorthodox hypothesis, but it is a theory that needs to be tested, and until then it is nothing more then a hypothesis.
“History repeats itself” is a saying that couldn’t be more accurate. In the economy, history does tend to repeat itself. A great example of that would be the business cycle, it always has ups, Peak, and rock bottoms, trough. The goal of the economy is to have recessions as small as possible not like the ones from 1929 and 2008. Instability is a big part of the changes in the business cycle because it is never possible to know how the economy would be the next year, that’s due to the free market. In a free market, firms apply theirs owns rules, of who do they want to sale and at what price. It can be that one year the sales are over the top, the best ever, but the next the demand for the product changes due to the increase in prices or due to the fact that the country that’s buying isn’t doing that well.
Minsky said, “financing long-lived capital assets with short-term debt and rolling the debt at maturity into another short-term debt.” Meaning that the debt passes from one short run to another. What the economy should do is get rid of the debt once the problem is solved to not carry that weight from one recession to another. This can lead to a big recession like the one in 2008 or the one from 1929.
The article also talks about, how the short run should finance the long-term projects. That could be done by, better cash flow (transparency between the Federal Reserve, banks and fringe banks), extending access to the Federal Reserve’s discount to securities dealers and important financial intermediaries (opportunities for more jobs), and finally carefully examining all financial institutions (ex., real estate investment trusts, finance companies, government bond dealers, commercial paper houses and any other institution engaged in position making” (Kregel, 2010).) In simpler words, creating new opportunities for the people.
The saying history repeat itself is very much true and i think it speaks volumes to our economy. We had those two diasters in 1929 and in 2008 that really opened our eyes to the views of our system and how it should be and we vote for our president with the belief that he or she can come in and change those things to help better our system to be better than it is but its going to take more than just them to fix it. A plan has to be in place to help structure and build our economy better for the best of our system but we need to be more opened minded to the change. Minskey theory was very phenomenal and especially his theory of what the banks and governments would be in that breakdown of his theory really was very good to read.
The idea of Keynesian economics basically ensures that there will be boom and bust cycles. How we combat the bust cycles is more what I believe that Minsky was stressing. The fact that we had such a large market correction in 2008 goes to show how we have not really learned from the past all that much. The fact is that measures could be taken to decrease the economic volatility of our country. Our economic stability, as opposed to in the 1930’s, is much greater now, but it is no where near perfect. I believe we should be learning as much as we can from our past failures and try to start fixing some of those problems now, but also preparing ourselves for the future and determining what we should do in the case that we get another market correction. Minsky has many good ideas in how we can start fixing some of our problems now.
As with everything in life, there should be a balance and cycle so that it is not always consistent. The economy fluctuates up and down, but eventually stabilizes. The economy cannot grow or be bettered if it is kept the same. We need to find out what does and what does not work, the move forward with a plan. Communication between the Federal Reserve and banks could allow for better planning when the economy tends towards a low point to ensure the economy doesn’t completely fail. Having a plan in place would be helpful, but may not always be preventable as the economy changes in different patterns and causes unavoidable problems. Through time however, everything balances out again. Being educated on the economy and reducing complete government regulation can fix many problems in the future for our economy. Having a better understanding of why the economy fluctuates allows us to better prepare for what is next in one way or another.
The great economic declines that resulted in the destruction of many peoples financial lives during certain points in our nations history (1929, and 2008 obviously), have so many economists thinking about ways those situations could have been avoided, or how we can avoid those situations in the future. Minsky is a great example of someone with ideas for economic stabilization. The ideas he has proposed seem like great ideas. His third point seems almost obvious, that if we had paid closer attention to the financial institutions, and the fringe banks, that we may have been able to avoid the recession in 2008, or at least lowered the damage in some way. In the long run, the economy will always have its natural fluctuations with many factors that are involved in what determines when we are on the rise, or decline. So I do not believe that Minsky has the answer to the perfect economy, or the answer to stop major decline, although I believe his last idea would help quite a bit.
However cliché, the phrase ‘history repeats itself’ will always hold relevance, especially when it comes to economics. Although it is unpredictable, we can learn from our past mistakes. This is what led Minsky to the development of three crucial steps that can decrease the effects of destabilization; more closely examine the cash flow, open access to the federal reserve discount windows, and examine all pertaining financial institutions. In theory, I overwhelmingly agree with Minsky’s ideas. However, I strongly believe that it would have the desired outcome only if implemented perfectly and under perfect circumstances. This kind of tactic would take time to develop, not to mention the economy will not just place itself into optimal conditions overnight, we will have to wait for both variables to become impeccable and to line up with each other as well. If we do not, I believe these ideas may not live up to their full potential, which would truly be a shame. With numerous factors and wavering probability, I feel that we would need to wait until presented with ideal economic conditions and plan of action for the execution of Minsky’s great ideas to achieve their desired outcomes.
I think that Minsky’s ideas about stabilizing the economy are valid and would have a positive impact for people that don’t know how to position themselves in the economy or prepare for a collapse. However, I think the way our economy inherently functions is through the booms and busts cycles. Collapses are bound to happen, but the markets always rebuild themselves and new cycles are constantly emerging. I think we have to view the collapses our economy goes through as part of the cycle, not as an issue that needs to be fixed. Minsky’s ideas could have positie effects for the average American, but do we really want more regulation or economy, even if it is just temporary. I think we have to weigh the pros and cons of what Minsky proposes against the way our economy currently functions and the benefits and opportunities it provides. Instead of trying to eliminate the booms and busts and collapses as a whole, I think we need to learn how to profit from them and to accept that this is just the way our economy and markets work. If the average American could gain a more in-depth knowledge of our economy and learn how to position themselves for an economic collapse or even profit from a collapse, I think our views on our economy and the cycles it goes through would become much more positive and we would start to see collapses as opportunities to invest, rather than problems that we need to fix.
Those who don’t learn from the past are doomed to repeat it. Time and time again history has proved this to be true. I think Minsky’s focus on the long-term solution instead of the short term is the smartest way to go about a problem. Especially one that has a huge impact on a large number of people, like an economic crisis. The great depression absolutely devastated the people of the united states, it took a war to spark recovery. The 2008 market crash, same thing. Careful examination of our financial institutions and how their financing works is the most important part of his proposal for regulation because its those institutions that hold the nations money supply.
Fluctuations are a common in the economy and often affect aspects such as prices, production rate, interest rates, the stock market, etc. Knowing that these fluctuations occur, it would be presumed that economists would be able to predict these occurrences. I agree with this idea as no one ever thought we would have another decline like the 1920 Depression and yet we recently witnessed the 2008 recession without warning. Typically, when we witness these recessions it is the result of over borrowing and is more than likely to happen again. Minsky goes into detail on the overall destabilization of the economy and his solutions. He suggests, better cash flow examination, giving the Federal Reserve access to securities dealers and financial intermediates, and examining financial institutions. I definitely think that if we took some of Minsky’s precautions we would be able to better identify when fluctuations will occur and find solutions to prevent them from occurring.
I completely agree with Minsky’s point of views. Over time we have been through recessions and depressions and history has been know to repeat it’s self. I also agree with his point of view on how we should prepare for any major issues that may present themselves in the future. I believe that if we take a look into our nations past we can refrain from doing the many things that the countries recessions and depressions. In doing that we will definitely have a better chance at securing a brighter future for the united states economy.
Market corrections are the result and solution to poor business practices. Though financially destructive, they are movements toward equilibrium. From markets and assets being incorrectly valued, poorly adjusted interest rates, defaulted loans, and subprime candidates. Minsky’s solution is the most obvious yet understated observation, honesty and transparency. However given human nature that seems to be an impossible task. Financial institutions operate in their own microcosm; they make the rules for their world. The longevity in which they operate is dependent upon the institution’s practices, and the practices of larger financial institutions. For example, commercial banks adopt their own rules of governance, while also adopting the rules of the Federal Reserve. While the tenants of Minsky’s beliefs seem to be in the best interest of the people, economy, and financial institutions, they seem almost too ideal for a Keynesian world. A world that operates on the boom-bust cycle, a world that does not allow natural selection of poor business practices. Instead rewarding what makes the most money in the shortest amount of time, at whatever the cost. Ensuring those who should benefit do, and leaving everyone else to fare as best they can.
History will repeat itself if we did not learn and improve from the past experience; I believe that Minsky’s entire theory rides on the back that history is bound to repeat itself, especially in our present day capitalist system. He believes that we are in a cycle of large economic boom and eventual bust. He presents ideas on how to have systems in place to stabilize our economy once an eventual bust happens. I agree with Minsky’s ideas on how to ease the problems in our boom-bust cycle but don’t know for certain that they would be foolproof. I agree with his idea that there should be more transparency in the banking industry, especially with banks that were given bailout money during the beginning stages of a financial crisis. I believe that banks should be held accountable and be able to show exactly how any money they were given is spent.