Abstract
This chapter explains the 2008 financial crisis with the help of the work of Hyman Minsky on instability. He explained financial crises as the consequence of over-optimism and over-borrowing, leading to unsustainable debt. A crash happens when the bubble bursts (the ‘Minsky Moment’). Both the demand side and the supply side of financial markets in the US in the period 1990–2008 can be explained with Minsky’s theory of instability or, to use his own term, financial fragility. The lesson is that an increasingly financialized economy requires stabilizing institutions. This requires a smaller FIRE-sector preventing too-big-to-fail banks, higher buffers and less money creation by commercial banks, for example, through the introduction of central bank digital currency.
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Notes
- 1.
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- 5.
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- 6.
Hyman Minsky, “Comment on Ben Bernanke, ‘Credit in the Macroeconomy’,” Hyman P. Minsky Archive, Paper 361. http://digitalcommons.bard.edu/hm_archive/361. Accessed June 19, 2020.
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Laure Lalouette and Henk Esselink, “Trends and developments in the use of euro cash over the past ten years” (Frankfurt: ECB Economic Bulletin, issue 6, 2018). https://www.ecb.europa.eu/pub/pdf/ecbu/eb201806.en.pdf?f0f55f1b4f767b3ac0030de809c181c3. Accessed on September 14, 2019.
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Bibliography
Dymski, Gary, Jesus Hernandez, and Lisa Mohanty. “Race, Gender, Power and the US Subprime Mortgage and Foreclosure Crisis: A Meso Analysis.” Feminist Economics 19, 3 (2013): 124–152.
Deutsche Bank Research. “EU Monitor Financial Markets.” https://www.dbresearch.com/PROD/RPS_EN-PROD/PROD0000000000443314/Large_or_small%3F_How_to_measure_bank_size.pdf. Accessed on July 15, 2020.
Minsky, Hyman. ‘Comment on Ben Bernanke, “Credit in the Macroeconomy,” Hyman P. Minsky Archive, Paper 361, 1993. http://digitalcommons.bard.edu/hm_archive/361. Accessed on June 19, 2020.
Lalouette, Laure, and Henk Esselink. “Trends and developments in the use of euro cash over the past ten years.” Frankfurt: ECB Economic Bulletin, issue 6, 2018. https://www.ecb.europa.eu/pub/pdf/ecbu/eb201806.en.pdf?f0f55f1b4f767b3ac0030de809c181c3. Accessed on September 24, 2019.
Sveriges Riksbank. “The Riksbank’s e-krona project – Report 2.” Stockholm: Sveriges Riksbank, October 2018. https://www.riksbank.se/globalassets/media/rapporter/e-krona/2018/the-riksbanks-e-krona-project-report-2.pdf. Accessed on July 15, 2020.
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van Staveren, I. (2021). Chapter 2: Hyman Minsky on Financial Crises. In: Alternative Ideas from 10 (Almost) Forgotten Economists . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-57609-7_3
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DOI: https://doi.org/10.1007/978-3-030-57609-7_3
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