Tue 2010-08-03 14:34 EDT

Rajiv Sethi: The Economics of Hyman Minsky [2009-12-03]

There has been a resurgence of interest in the economic writings of Hyman Minsky over the past few years, and for good reason...Minsky's theoretical framework combines a cash-flow approach to investment with a theory of financial instability...expectations of financial tranquility are self-falsifying. Stability, as Minsky liked to put it, is itself destabilizing...An essential feature of Minsky's financial instability hypothesis is that a long period of sustained stability gives rise to changes in financial practices which are not conducive to the persistence of stable growth...A sustained period of stability gives rise to optimistic expectations and a rise in speculative financing...if a large number of investments which are prompted by the availability of speculative finance are found to be inept, so that immediate cash flows are significantly lower than expected, then the need for short-term refinancing becomes acute while at the same time banks are less willing to roll over existing debt. A sharp rise in short-term interest rates occurs which can lead to present value reversals, a rush towards liquidity, a plunge in the prices of illiquid assets, both real and financial, and a corresponding drop in new investments...described as a credit crunch, a state of financial distress, or a financial crisis...

2009-12-03; economic; Hyman Minsky; Rajiv Sethi.

Wed 2010-07-28 10:55 EDT

Economics: No, America lacks the necessary commitment to stimulus | The Economist

Richard Koo

...the US today is suffering from a balance sheet recession, a very rare ailment which happens only after the bursting of a nationwide debt-financed asset price bubble. In this type of recession, the private sector is minimising debt instead of maximising profits because the collapse in asset prices left its balance sheets in a serious state of excess liability and in urgent need of repair...fiscal stimulus becomes indispensible in a balance sheet recession. Moreover, the stimulus must be maintained until private sector deleveraging is over...When the deficit hawks manage to remove the fiscal stimulus while the private sector is still deleveraging, the economy collapses and re-enters the deflationary spiral. That weakness, in turn, prompts another fiscal stimulus, only to see it removed again by the deficit hawks once the economy stabilises. This unfortunate cycle can go on for years if the experience of post-1990 Japan is any guide. The net result is that the economy remains in the doldrums for years, and many unemployed workers will never find jobs in what appears to be structural unemployment even though there is nothing structural about their predicament...

America lacked; economic; Economist; necessary commitments; stimulus.

zero hedge Mon 2009-12-28 15:12 EST

Quantitative Easing Has Been A Monetary Failure; Persistent Deflation Means More Fed Intervention Coming Soon

As more and more pundits discuss the spectre of inflation, with gold flying to all time highs which many explain as an inflation hedge, not to mention stock price performance which is extrapolating virtual hyperinflation, the market "truth" as determined by Fed Fund futures and options is, and continues to be, diametrically opposite...Bernanke is very likely about to unleash Quantitative Easing 2: If the $1.7 trillion already thrown at the problem has not fixed it, you can bet that the Chairman will not stop here. Furthermore, as the Fed has the best perspective on the economy, which is certainly far worse than is represented, the Fed has to act fast before things escalate even more out of control. Which is why Zero Hedge is willing to wager that not only will the agency/MBS program not expire in March as it is supposed to, but that a parallel QE process will likely begin very shortly. The end result of all these actions, of course, is that the value of the dollar is about to plummet: when Bernanke announces that not only will he not end QE but that he will launch another version of the program, expect the dollar to take off on its one way path to $2 = €1. And when that happens, look for global trade to cease completely. In its quest to continue bailing out the banking system and rolling the trillions of toxic loans it refuses to accept are worthless (for if it did, equity values in the banking system would go, to zero immediately), the Fed will promptly resume destroying not only the US middle class, but the entire system of global trade built through many years of globalization. Look for America to end up in an insulated liquidity bubble in a few short years, trading exclusively with its vassal master: the People's Republic of China.

Fed Intervention Coming; Monetary Failure; Persistent Deflation Means; Quantitative Easing; Zero Hedge.

naked capitalism Sun 2009-11-29 12:27 EST

The Kanjorski Amendment Trojan Horse and Prompt Corrective Action

Edward Harrison of Credit Writedowns

...On page 7 of the Kanjorski Amendment, there is an enormous loophole that virtually eliminates the ability of regulators to take prompt corrective action in seizing and shutting down a bankrupt financial institution...

Kanjorski Amendment Trojan Horse; naked capitalism; Prompt Corrective Action.

zero hedge Sun 2009-08-30 15:00 EDT

Was Morgan Stanley Compromised By Project Mayhem?

One of the key headlines these days has been the unmasking of what has been dubbed the biggest identity theft and credit card fraud case in history, allegedly spearheaded by one Albert Gonzalez, who in 2003 was involved in a comparable scheme however upon being caught, promptly became an informant for the Secret Service and turned over 30 of his hacking buddies. Six years later it is he this time who is in the hot seat, together with most of his associates, including one 25 year old Stephen Watt, who supposedly was the creator of the credit card sniffer software used to hack into over 130 million of various credit cards for merchants such as TJX, Dave And Busters and 7-Eleven, which numbers were subsequently sold for hefty sums...

Morgan Stanley Compromised; Project Mayhem; Zero Hedge.

ClubOrlov Wed 2009-08-26 14:22 EDT

That Bastion of American Socialism...the United States military

kollapsnik

Over the past few months the American mainstream chatter has experienced a sudden spike in the gratuitous use of the term "Socialist." It was prompted by the attempts of the federal government to resuscitate insolvent financial institutions. These attempts included offers of guarantees to their clients, injections of large sums of borrowed public money, and granting them access to almost-free credit that was magically summoned ex nihilo by the Federal Reserve. To some observers, these attempts looked like an emergency nationalization of the finance sector was underway, prompting them to cry "Socialism!" Their cries were not as strident as one would expect, bereft of the usual disdain that normally accompanies the use of this term. Rather, it was proffered with a wan smile, because the commentators could find nothing... ``Since the end of the Civil War, Americans have become accustomed to thinking of war as something that happens elsewhere, to other people. Thus, the news that the US is bombing this or that land, for no adequate reason, killing and maiming numerous civilians, produces in us neither the normal human reaction of revulsion, nausea and disgust, nor the conviction that we must take the fight to our own monstrous leaders, lest we too become monsters. Life under domestic military occupation might bring home some welcome realizations, and start Americans down the long road of atoning for the sins of their forefathers, who have run roughshod over much of the rest of the planet for far too long.''

American social; bastion; ClubOrlov; United States military.