Minsky model
The Minsky Model of a General Financial Crisis
A Synopsis of ‘Chapter 2 -- The Anatomy of a Typical Crisis’ in Manias, Panics and Crashes - A History of Financial Crises by Charles P. Kindleberger and Robert Z. Aliber,
Sixth Edition, Palgrave Macmillan, Copyright 2011
Since the end of the Great Depression “…financial failure has been more extensive and pervasive” in the 30-year period 1980 to 2010 than at any other time leading up to the present day (p. 7). Four financial crises occurred in this 30-year period. The closest in time of the four financial crises to the present period is the recent liquidity crisis, the so-called Great Recession of 2007 – 2009, beginning in the United States, Great Britain, Spain, Ireland and Iceland. Eventually all of the countries of the Eurozone succumbed to the disequilibria of the Great Recession with the Eurozone’s suffering further intensifying because of the emergence of the so-called Sovereign Debt Crisis, a sub-crisis morphing out of the Great Recession in 2010 and 2011, involving Greece, Portugal, Spain, Italy and Cyprus. The Sovereign Debt Crisis is still ongoing having recently extended itself into calendar year 2013.
By its very nature, a model of the recurrence of the business cycle affecting the market economy does not allow for a boom without a bust. However, of credit bubbles and financial crises, also cyclical phenomena, a financial crisis need not always follow a credit bubble though a credit bubble has always preceded a financial crisis. Robert Aliber writes, ‘the thesis of the book is that the cycle of manias and panics results from pro-cyclical changes in the supply of credit; the credit supply increases rapidly in good times, and then when economic growth slackens, the rate of growth of credit has often declined sharply” (p.13). Credit bubbles fuel asset bubbles therefore asset bubbles “are a monetary phenomenon and result from rapid growth in the supply of credit” (p. 11). Robert
A Synopsis of ‘Chapter 2 -- The Anatomy of a Typical Crisis’ in Manias, Panics and Crashes - A History of Financial Crises by Charles P. Kindleberger and Robert Z. Aliber,
Sixth Edition, Palgrave Macmillan, Copyright 2011
Since the end of the Great Depression “…financial failure has been more extensive and pervasive” in the 30-year period 1980 to 2010 than at any other time leading up to the present day (p. 7). Four financial crises occurred in this 30-year period. The closest in time of the four financial crises to the present period is the recent liquidity crisis, the so-called Great Recession of 2007 – 2009, beginning in the United States, Great Britain, Spain, Ireland and Iceland. Eventually all of the countries of the Eurozone succumbed to the disequilibria of the Great Recession with the Eurozone’s suffering further intensifying because of the emergence of the so-called Sovereign Debt Crisis, a sub-crisis morphing out of the Great Recession in 2010 and 2011, involving Greece, Portugal, Spain, Italy and Cyprus. The Sovereign Debt Crisis is still ongoing having recently extended itself into calendar year 2013.
By its very nature, a model of the recurrence of the business cycle affecting the market economy does not allow for a boom without a bust. However, of credit bubbles and financial crises, also cyclical phenomena, a financial crisis need not always follow a credit bubble though a credit bubble has always preceded a financial crisis. Robert Aliber writes, ‘the thesis of the book is that the cycle of manias and panics results from pro-cyclical changes in the supply of credit; the credit supply increases rapidly in good times, and then when economic growth slackens, the rate of growth of credit has often declined sharply” (p.13). Credit bubbles fuel asset bubbles therefore asset bubbles “are a monetary phenomenon and result from rapid growth in the supply of credit” (p. 11). Robert