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Yes, "It" Did Happen Again - A Minsky Crisis Happened in Asia


  • J.A. Kregel

    (The Jerome Levy Economics Institute)


The Asian financial crisis is doubly unfortunate, first of all because it has set income and wealth levels in these countries back some ten years. But, it is also unfortunate because Hy Minsky been alive to point out to policy makers that they were dealing with a debt deflation the worst excesses might have been prevented. Hy spent a good deal of time explaining why "It", that is, the Great Depression, Can't Happen Again. But, in this case of Asia it did. And this is also a lesson for why it might happen again, outside the Far East. First, Hy insisted on the beneficial impact of Big Government in providing a floor under aggregate demand. Free falls in asset prices could not happen if there was a guaranteed floor under incomes. The Bigger the Government, the firmer foundation and the stable the economy. Not that this didn't cause other problems, but it meant that you could only go down so far. If we take a look at the vital statistics of the Asian economies, we see in general that they have small governments. And those governments tend to run persistent surpluses. There are no firm foundations here. This is not to say that government played no role. We have heard a lot about ‘crony capitalism' in Asia. But, this sort of income support does not provide the kind of aggregate demand support that Hy thought was beneficial to avoiding instability. Hy also thought that a Big Bank, an active central bank willing to intervene actively by lending at the discount window in support of asset prices, and thus of bank solvency, was of crucial importance. Hy did not believe in tying one's hands or currency boards or other forms of shooting financial markets in the foot. It is true that central banks are common in Asia, and in some countries they are active on the policy front. But, in the current crisis a major portion of the lending to firms and financial institutions was in foreign currency, Yen and US dollars, which meant that the local central bank was constrained in its ability to act as lender of last resort by the size of its dollar reserves. They could not follow the Bagehot principle of lending without limit. Of course, they has the (non)-choice of adopting floating exchange rates, but this would have made their ability to act that much weaker.

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  • J.A. Kregel, 1998. "Yes, "It" Did Happen Again - A Minsky Crisis Happened in Asia," Macroeconomics 9805017, EconWPA.
  • Handle: RePEc:wpa:wuwpma:9805017 Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 19; figures: included

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    Cited by:

    1. Gary Dymski & James Crotty, 2000. "Can the Global Neoliberal Regime Survive Victory in Asia? The Political Economy of the Asian Crisis," Published Studies ps5, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Goldstein, Don, 2001. "Financial sector reform and sustainable development: the case of Costa Rica," Ecological Economics, Elsevier, vol. 37(2), pages 199-215, May.
    3. Leszek Kąsek & Marek Lubiński, 2010. "hyman," Contemporary Economics, University of Finance and Management in Warsaw, vol. 4(1), March.
    4. Karwowski, Ewa & Stockhammer, Engelbert, 2016. "Financialisation in Emerging Economies: A Systematic Overview and Comparison with Anglo-Saxon Economies," Economics Discussion Papers 2016-11, School of Economics, Kingston University London.
    5. Özlem Onaran, 2006. "Speculation-led growth and fragility in Turkey: Does EU make a difference or "can it happen again"?," Department of Economics Working Papers wuwp093, Vienna University of Economics and Business, Department of Economics.
    6. Ognjen Radonjić & Miodrag Zec, 2010. "Subprime Crisis and Instability of Global Financial Markets," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(2), pages 209-224, June.
    7. Jan Toporowski & Giovanni Cozzi, 2006. "The Balance Sheet Approach to Financial Crises in Emerging Markets," Economics Working Paper Archive wp_485, Levy Economics Institute.
    8. Iancu, Aurel, 2011. "Financial System Fragility Models," Working Papers of National Institute of Economic Research 110211, National Institute of Economic Research.
    9. Moritz Cruz, 2005. "A three-regime business cycle model for an emerging economy," Applied Economics Letters, Taylor & Francis Journals, vol. 12(7), pages 399-402.
    10. Andrew van Hulten & Michael Webber, 2010. "Do developing countries need 'good' institutions and policies and deep financial markets to benefit from capital account liberalization?," Journal of Economic Geography, Oxford University Press, vol. 10(2), pages 283-319, March.
    11. Mario Tonveronachi, 2007. "Implications of Basel II for financial stability. Clouds are darker for developing countries," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 60(241), pages 111-135.
    12. repec:eee:rujoec:v:1:y:2015:i:4:p:419-438 is not listed on IDEAS
    13. Mario Tonveronachi, 2009. "Implications of Basel II for financial stability. Clouds are darker for developing countries," PSL Quarterly Review, Economia civile, vol. 62(248-251), pages 117-142.
    14. Agustinus, Prasetyantoko & Luhur, Fajar-Marta, 2008. "Indonesia’s Ponzi Economy: Does Financial Crisis Give a Lesson," MPRA Paper 6776, University Library of Munich, Germany.
    15. Mario Tonveronachi, 2007. "Implications of Basel II for financial stability. Clouds are darker for developing countries," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 60(241), pages 111-135.
    16. Iancu, Aurel, 2011. "Models of Financial System Fragility," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 230-256, March.

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