1/6 Great essay by Perry Mehrling: "For Minsky, the boom is thus...
Michael Pettis@michaelxpettis
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May 11, 2024
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Great essay by Perry Mehrling: "For Minsky, the boom is thus not at all a matter of irrationality but rather of profit seeking, of firms looking to reduce financing costs in competition with other firms which are also looking to reduce...
journals.openedition.org/oeconomia/16488
Great essay by Perry Mehrling: "For Minsky, the boom is thus not at all a matter of irrationality but rather of profit seeking, of firms looking to reduce financing costs in competition with other firms which are also looking to reduce...
journals.openedition.org/oeconomia/16488
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financing costs, and of banks accommodating them. Over time, as financing arrangements get ever more fragile, in the end it takes very little to prick the bubble and shift everything into reverse."
financing costs, and of banks accommodating them. Over time, as financing arrangements get ever more fragile, in the end it takes very little to prick the bubble and shift everything into reverse."
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This is a point that is too often missed. Booms and bubbles are not consequences of "fear", "greed", stupidity or irrational behavior. They are the consequences of a normal distribution of risk taking among a wide range of economic agents.
This is a point that is too often missed. Booms and bubbles are not consequences of "fear", "greed", stupidity or irrational behavior. They are the consequences of a normal distribution of risk taking among a wide range of economic agents.
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When some "displacement" occurs, those who typically take on too much risk, rather than be disciplined, will systematically outperform. A recent case is the 4 decades of rising real estate prices in China, driven at first by urbanization and real increases in productivity,
When some "displacement" occurs, those who typically take on too much risk, rather than be disciplined, will systematically outperform. A recent case is the 4 decades of rising real estate prices in China, driven at first by urbanization and real increases in productivity,
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After many years, the whole economic system – including not just property developers but also other businesses, banks, households and governments – had little choice but to shift towards excessive property-related risk-taking. It is this Minskyite process that drives booms.
After many years, the whole economic system – including not just property developers but also other businesses, banks, households and governments – had little choice but to shift towards excessive property-related risk-taking. It is this Minskyite process that drives booms.
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That is why the longer a boom goes on, the more difficult the adjustment often is. Over time the assumptions driving the boom become increasingly deeply embedded into the balance sheets and operations of an increasingly wide range of economic institutions.
That is why the longer a boom goes on, the more difficult the adjustment often is. Over time the assumptions driving the boom become increasingly deeply embedded into the balance sheets and operations of an increasingly wide range of economic institutions.