Martin Wolf about GFC and Minsky

Over the past few weeks three experiences have helped clear my mind on this crisis.

First, I reread Hyman Minsky’s masterpiece, Stabilizing an Unstable Economy.

What went wrong?

The short answer: Minsky was right. 

A long period of rapid growth, low inflation, low interest rates and macroeconomic stability bred complacency and increased willingness to take risk.

Is the worst now over? Certainly not

Unwinding of excesses on such a scale involves four giant processes: the fall of inflated asset prices to a sustainable level; de-leveraging of the private sector; recognition of resulting financial sector losses; and recapitalisation of the financial system. Making all this worse will be the collapse in private sector demand, as credit shrinks and wealth falls.

None of these processes is even close to completion. Some have barely begun. In particular, property prices are still falling, even in the US. Similarly, the adjustment in the real economy, particularly the inevitable rises in household savings rates in the US and UK are at an early stage

Martin Wolf, Financial Times, September 16 2008

https://internetional.se/wolfclear.htm

 

 ‘Minsky moment’ 

https://englundmacro.blogspot.com/2020/09/markets-are-facing-potential-minsky.html

Minsky would have warned that the “great moderation” contained seeds of its own destruction.

Martin Wolf, Financial Times, January 3, 2012

https://internetional.se/stabiliseringspolitik.htm#0112divide

The Great Moderation is dead

https://englundmacro.blogspot.com/2022/07/the-great-moderation-is-dead.html