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US economic policy since 1980 has been to use debt to replace wages and taxes to maintain prosperity and global domination. That approach seems to have hit its limits, but because the political aspects of this policy are now so deeply rooted in American governments, it's proved unusually difficult to dislodge.
And the world will live as one
Minsky was especially right: good times lead to loss of any perspective of appropriate credit levels. Only in really good times massive shifts to speculative financing (just to cover the interest) and even Ponzi financing (when escalating refinancing is necessary) could be "normal". Before long, money concentrates in hands of a small minority, that can naively expect opportunities for double-digit returns forever. The volume of financial claims now exceeds the evaluation of annual globe production at least 4 times. So instead of producing and exchanging happily, the world must be concerned how to return more than it has. The compound interest is ticking regardless of economic and physical limitations.
The debt proportion gets only worse when massive market bets have to be honoured at the expense of taxpayers and society. Money is just wealth vouchers, really. What else a rich boy could do with it?
I have been trying to trace the intellectual history of this idea. As far as I can tell the first to clearly state it was Veblen. Then came Fisher (who introduced debt deleveraging as a way to explain the Great Depression) but who apparently was unaware of Veblen's work and so has to be considered an independent discovery.
Then Minsky refers to Fisher and debt deflation, while also giving some credit to Keynes' General Theory, but again he omits Veblen.
Keen is explicitly working on modelling Minsky's framework, and Hudson is also talking in Minskian terms (Ponzi Finance).
The brainless should not be in banking -- Willem Buiter
Largely, I see so-called investments as money hoarding as well. The investors do give away money first, but on balance they ask later much more, eventually leading to recession plights.
The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except y reason of death or other grave cause, might be a useful remedy for our contemporary evils. For this would force the investor to direct his mind to the long-term prospects and to those only. But a little consideration of this expedient brings us up against a dilemma, and shows us how the liquidity of investment markets often facilitates, though it sometimes impedes, the course of new investment. For the fact that each individual investor flatters himself that his commitment is 'liquid' (though this cannot be true of all investors collectively) calms his nerves and makes him much more willing to run a risk. If individual purchases of investments were rendered illiquid, this might seriously impede new investment, so long as alternative ways in which to hold his savings are availale to the individual. This is the dilemma. So long as it is open to the individual to employ his wealth in hoarding or lending money, the alternative of purchasing actual capital assets cannot be rendered sufficiently attractive (especially to the man who does not manage the capital assets and know very little about them), except by organising markets wherein these assets can be easily realised for money.
If prices are going up, Ponzi style, at 5 % a month, the speculator will be entirely unperturbed and only mildly inconvenienced by a transaction charge of 1 %.
Friends come and go. Enemies accumulate.
Hence the name of his blog: Credit Writedowns
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