Old Cardinal
10-04-2009, 01:36 PM
Subject: A unique look at present economic times...This is written to my friends as to what I see in my Crystal Ball LOL..
I only took one economics course at the graduate level and I remember an obscure Macro-economist, barely mentioned in the whole scheme of things dealing with the facets of the forces altering the economy.
Hayman Minsky and his thoughts were buried by more popular liberal perpetual "stability" beliefs back in the mid 1960s... Looking at the present worldwide economy under crisis; his words seem to be proving quite accurate.
My guess is that-- needed inventions, quantum-leap technology, Internet commerce explosions, and a little-known new phenomenon named-- Virtual Banks-- cropping up will help to warrant in a non-euphoric attitude among the innovative business people of the planet and a period of stabilization of the economy will result.
How long will that last? I think the answer is as expressed in the excerpt found below "As people forget that failure is a possibility."
For me, I will invest for the most part in companies and enterprises that have no debt and their Current Assets are greater than their Total Liabilities. Fiscal conservatism is boring: to a fast-fix giant group of present players. However, empirical data shows it prods along quite well in good and bad times. Most of all it survives crisis such as we are presently experiencing~~~~~~~~~~~~Please also read the following, it hits the nail on the head for me..
Copy/paste ... This article concerns financial theorem written long ago by an economist with little following is his day or our day...
~~~~~~~~~~~~~~~~~~~enjoy,
Minsky called his idea the “Financial Instability Hypothesis.” In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”
As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.
Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment - what was later dubbed the “Minsky moment” - would create an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that depended on the now-collapsing financial system
I only took one economics course at the graduate level and I remember an obscure Macro-economist, barely mentioned in the whole scheme of things dealing with the facets of the forces altering the economy.
Hayman Minsky and his thoughts were buried by more popular liberal perpetual "stability" beliefs back in the mid 1960s... Looking at the present worldwide economy under crisis; his words seem to be proving quite accurate.
My guess is that-- needed inventions, quantum-leap technology, Internet commerce explosions, and a little-known new phenomenon named-- Virtual Banks-- cropping up will help to warrant in a non-euphoric attitude among the innovative business people of the planet and a period of stabilization of the economy will result.
How long will that last? I think the answer is as expressed in the excerpt found below "As people forget that failure is a possibility."
For me, I will invest for the most part in companies and enterprises that have no debt and their Current Assets are greater than their Total Liabilities. Fiscal conservatism is boring: to a fast-fix giant group of present players. However, empirical data shows it prods along quite well in good and bad times. Most of all it survives crisis such as we are presently experiencing~~~~~~~~~~~~Please also read the following, it hits the nail on the head for me..
Copy/paste ... This article concerns financial theorem written long ago by an economist with little following is his day or our day...
~~~~~~~~~~~~~~~~~~~enjoy,
Minsky called his idea the “Financial Instability Hypothesis.” In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”
As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.
Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment - what was later dubbed the “Minsky moment” - would create an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that depended on the now-collapsing financial system