Why the US can’t escape Minsky

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My call a few weeks ago that the global finan­cial cri­sis is over was very much an Anglo-centric one, and a US-centric one in par­tic­u­lar (Clos­ing the door on the GFC, March 10).

Europe’s con­tin­u­ing own goal from the euro and aus­ter­ity, and credit excesses in emerg­ing economies, could still derail a global recov­ery. But the epi­cen­tre of the cri­sis was the US, and the indi­ca­tions are solid there that this par­tic­u­lar ‘Min­sky moment’ is behind it.

Putting China’s dramatic transformation into perspective

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I have been to so many coun­tries in the last decade that my car­bon foot­print is Yeti-size. But one coun­try I haven’t been to for 32 years is the one I’m in now: China.

What a dif­fer­ence three decades makes: my visit in 1981–82 coin­cided with the trial of the Gang of Four; now many sub-25 Chi­nese think that must be the name of a new boy band they yet haven’t heard of.

Monetary Realism from the Bank of England

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A cou­ple of weeks ago I took a swipe at Bank of Eng­land over a speech by its Gov­er­nor Mark Car­ney that was unre­al­is­tic about the dan­gers of a bloated finan­cial sec­tor (Godzilla is good for you? March 3). Today I’m doing the oppo­site: I’m doff­ing my cap to the researchers at Thread­nee­dle Street for a new paper “Money cre­ation in the mod­ern econ­omy,” which gives a truly real­is­tic expla­na­tion of how money is cre­ated, why this really mat­ters, and why vir­tu­ally every­thing that eco­nomic text­books say about money is wrong.

Closing the door on the GFC

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(At least for the Anglo zone; more on Europe and Emerg­ing Mar­kets in com­ing weeks).

One of the ironies of the eco­nomic cri­sis that began in late 2007 is that the best acronym for it — the “GFC” for “global finan­cial cri­sis” — was coined in the one coun­try that suf­fered the least from it, Aus­tralia. The year 2014 is the sev­enth of the “GFC” (the panic began on August 9, 2007, when BNP Paribas shut down three of its subprime-based funds), but at last the major­ity of eco­nomic reports are of sus­tained if anaemic growth, rather than of bank fail­ures and reces­sion. Australia’s reported growth rate for 2013 of 2.8 per cent fol­lows the UK report­ing 1.9 per cent and the US 2.4 per cent; even the EU, where sev­eral coun­tries are still mired in out­right Depres­sions, recorded an over­all growth rate of 0.1 per cent for 2013.

Godzilla is good for you?

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The big­ger the finan­cial sec­tor gets, the more it can destroy. And Bank of Eng­land Gov­er­nor Mark Carney’s vision of British banks nine times the size of GDP is pos­i­tively terrifying…

Fans of Japan­ese schlock fic­tion will be pleased to know that that old mega-favourite Godzilla is return­ing in 2014, to stomp on sim­u­lated cities in a cin­ema near you. And of course, he’s big­ger and bet­ter: the orig­i­nal Japan­ese movie had him at about 50–100 metres and weigh­ing 20–60,000 tons; I’d guess he was about twice that size in the 1998 US remake; and by the looks of the trailer for the 2014 movie, he’s now a cou­ple of kilo­me­tres tall and prob­a­bly weighs in the millions.

Minsky users please update

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The penul­ti­mate Win­dows ver­sion of Min­sky (released a few days ago) inad­ver­tently installed an old ker­nel with a very low exe­cu­tion speed. This has been fixed in the lat­est ver­sion. If you down­loaded a few days ago and now find that mod­els run very slowly, please down­load the lat­est ver­sion today (it has the same name: Minsky.1.D32). If you down­loaded before then, the exe­cu­tion speed will be fine, but a few bugs have also been fixed in this release: see Tick­ets for the details (from my per­spec­tive, the main bug was a fail­ure to pass LaTeX for­mat­ting codes between God­ley Tables).

Australia’s RBA is asleep at the wheel

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Last week I satirised Australia’s out­moded belief that the rate of inter­est can be used to fine tune the econ­omy. This belief was ensconced in the so-called “Tay­lor Rule”, which accu­rately described what cen­tral banks tended to do until the eco­nomic cri­sis hit in 2007. That rule saw the infla­tion rate and the unem­ploy­ment rate as the two key eco­nomic indi­ca­tors, and the inter­est rate as the key mech­a­nism needed to achieve an accept­able bal­ance between them.

Of course, the cri­sis blew that rule out of the water, and issues that cen­tral bankers once dis­missed as unim­por­tant — like, for exam­ple, asset price bub­bles or the level of pri­vate debt — sud­denly had to be discussed.

Mostly Harmless

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Dou­glas Adams’ bril­liant comic farce The Hitchhiker’s Guide to the Galaxy describes Earth as resid­ing in sec­tor ZZ9 Plural Z Alpha, one of “the uncharted back­wa­ters of the unfash­ion­able end of the West­ern Spi­ral Arm of the Galaxy” and being inhab­ited by “ape-descended life forms” who “are so amaz­ingly prim­i­tive that they still think dig­i­tal watches are a pretty neat idea”.

Some­times when I return to Aus­tralia, I feel that I’ve arrived in the planet’s sec­tor ZZ9 Plural Z Alpha. Here, the eco­nomic debate is so prim­i­tive that peo­ple still think the econ­omy can be con­trolled by tin­ker­ing with the rate of interest.

The UK knows its place

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I know my place” was the title of a famous sketch on Eng­lish class sen­si­bil­i­ties from the 1960s, star­ring the very tall (Upper Class) John Cleese, the aver­age height (Mid­dle Class) Ron­nie Barker, and the very short (Lower Class) Ron­nie Corbett.

The Upper Class Cleese gen­er­ally looked down on both Mid­dle Class Barker and Lower Class Cor­bett; Barker looked up to Cleese and down on Cor­bett; and Cor­bett “knew his place”. That was at the bot­tom of the Eng­lish class sys­tem peck­ing order, and sur­viv­ing his place meant liv­ing life with low­ered expectations.