Tuesday, April 03, 2012


EconoMonitor : Great Leap Forward » WHY MINSKY MATTERS: Part One by Randall Wray

"The two most important constraining institutions are the “Big Government” (national treasury) and the “Big Bank” (central bank). The first helps to stabilize the economy through a countercyclical budget: spending falls and taxes rise in a boom, while spending rises and taxes fall in a bust—so surpluses in expansion and deficits in recession constrain the cycle. The central bank can try to constrain lending in a boom (although Minsky was skeptical since profit-seeking banks innovate around constraints), but more importantly it can act as lender of last resort when a financial crisis hits. This prevents a run on financial institutions, which reduces pressure on banks to engage in firesales of assets to meet withdrawals."
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