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Finance as Perpetual Orgy. How the ‘new alchemists’ twisted Kindleberger’s cycle of “manias, panics and crashes” to “manias, panics and renewed-manias”

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  • Palma, J. G.

Abstract

The analysis will focus on how the traditional Kindlebergian financial-crisis cycle of “manias, panics and crashes” has been twisted so that now policymakers make sure that any panic is immediately followed by a renewed mania. Due to a “secular-stagnationists”-style thinking, central bankers, treasury officials and politicians - the ‘new alchemists’ - now believe that only a perpetual-mania can deliver some resemblance of growth. So, they persist in pumping liquidity and relaxing monetary conditions, no matter how much this violates every possible principle of markets economics, and regardless of the fact that the current policies to reactivate mature economies (rocketing the net-worth of a few individuals) have already been tried and failed post-2008. One by-product of this new perpetual-mania is that emerging markets have become what I have labelled “the financial markets of last resort”, and commodities “the financial asset of last resort”. That is, most emerging markets now don’t have to put up anymore with international finance being a “sellers” market (where they had to knock and beg); now, it is the international speculator who has been pushed into a yield-chasing frenzy in emerging markets. This new “buyers” market has proved to be a mixed blessing for emerging markets, as many of them have joined the ‘everything rally’ - in which you have nothing to lose but your real economy.

Suggested Citation

  • Palma, J. G., 2020. "Finance as Perpetual Orgy. How the ‘new alchemists’ twisted Kindleberger’s cycle of “manias, panics and crashes” to “manias, panics and renewed-manias”," Cambridge Working Papers in Economics 2094, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2094
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    manias; panics; financialisation; QE; excess liquidity; ‘disconnect’ between the financial and the real worlds; emerging markets; Latin America; Asia; Keynes; Kindleberger; Minsky; Buchanan;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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