Why the United States Will Beat China to the Next Minsky Moment

Related publications

• Policy Notes No.1 06 February 2018

  Does the United States Face Another Minsky Moment?

  L. Randall Wray
  Abstract

  It is beginning to look a lot like déjà vu in the United States. According to Senior Scholar L. Randall Wray, the combination of overvalued stocks, overleveraged banks, an undersupervised financial system, high indebtedness across sectors, and growing inequality together should remind one of the conditions of 1929 and 2007. Comparing the situations of the United States and China, where the outgoing central bank governor recently warned of the fragility of China’s financial sector, Wray makes the case that the United State is far more likely to “win” the race to the next “Minsky moment.” Instead of sustainable growth, we have “bubble-ized” our economy on the back of an overgrown financial sector—and to make matters worse, he concludes, US policymakers are ill-prepared to deal with the coming crisis.

  Download Policy Note 2018/1 PDF (334.91 KB)
• Working Paper No.1021 29 June 2023

  Can It Be Prevented This Time?

  Lorenzo Esposito and Giuseppe Mastromatteo
  Abstract

  Since the nineties, crises have punctuated financial markets, shattering the conventional wisdom about how these markets work and how to regulate them, and forcing a deep rethinking of the supervisory framework that, however, did not change much of the banks’ behavior and incentives. In particular, banking regulation did not face the nexus profitability-riskiness. Based on Minsky’s financial instability hypothesis, we discuss the literature on banks’ profitability and its relation to the originate-to-distribute model. We also propose a different strategy for banking regulation, based on a profitability cap that prevents financial innovation from overwhelming supervision. Finally, we discuss the data for the US case, confirming the importance of profitability as a signal of incoming troubles and the possibility of using the profitability cap to greatly simplify banking regulation.

  Download Working Paper No. 1021 PDF (751.72 KB)
• One Pager No.66 01 April 2021

  Anatomy of a Stock Market Bubble

  Frank Veneroso
  Abstract

  According to Frank Veneroso, a broad subset of today’s US stock market has become what he calls a “pure price-chasing bubble.” Examination of the history of comparable pure price-chasing bubbles shows there has been a set of key causal factors that contributed to these rare market events. The most extreme such case was an over-the-counter market in Kuwait called the “Souk al-Manakh.” This exemplar of a pure price-chasing phenomenon may shed light—albeit unflattering—on the current US equity market, Veneroso contends.

  Download One-Pager No. 66 PDF (103.04 KB)