Tuesday, April 03, 2012

WHY MINSKY MATTERS

EconoMonitor : Great Leap Forward » WHY MINSKY MATTERS: Part One by Randall Wray
http://www.economonitor.com/lrwray/2012/03/27/why-minsky-matters-part-one/

"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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