I have not seen too many longer articles about the “gilt crisis” in the United Kingdom, but have seen a variety of reactions on Twitter. My reaction is that the discussions reminded me why I mainly followed people who used the title “rates forecaster” and not “economist” when I was in finance.
Thank you for the incredible insights on this situation. I'm curious if you're familiar with work done by Morgan Ricks? In his 2016 book The Money Problem (https://www.amazon.com/Money-Problem-Rethinking-Financial-Regulation/dp/022633032X) he makes the case that financial crises only result in prolonged economic slumps under specific circumstances; namely, banking panics (i.e. rapid redemptions of short-term deposits from banks, including "shadow" banks). He acknowledges Minsky's work on debt cycles and financial instability, but points out that financial crises that do not include banking panics have historically led to short-lived economic contractions; depressions are always preceded by banking panics. This current fiasco seems to fit the criteria for a "Minsky Moment" (to your point), but I wonder if that portends a deep economic recession vs. a short term speed bump. Ricks' thesis would seem to support the latter. He seems credible; he worked formerly at Citadel as a merger arb investor specializing in financials, then later at the US Treasury under the Obama admin, and now is a professor at Vanderbilt Law School.
Curious to hear your thoughts. Thanks again for your great work on this situation.
Yes, it needs to hit the real economy somehow to get a major effect. Minsky’s main discussions were how aggressive lending feeds a fixed investment-led boom. The UK panic (so far) is just about risk taking in the financial sector. Minsky talked about that, but it’s perhaps not truly a “Minsky Moment.” I haven’t seen the book mentioned, but it sounds reasonable.
Ironically, maybe the investment and risk management staff of the pension funds are not old enough to remember what happened in 94 and to LTCM in 98.
Hi Brian,
Thank you for the incredible insights on this situation. I'm curious if you're familiar with work done by Morgan Ricks? In his 2016 book The Money Problem (https://www.amazon.com/Money-Problem-Rethinking-Financial-Regulation/dp/022633032X) he makes the case that financial crises only result in prolonged economic slumps under specific circumstances; namely, banking panics (i.e. rapid redemptions of short-term deposits from banks, including "shadow" banks). He acknowledges Minsky's work on debt cycles and financial instability, but points out that financial crises that do not include banking panics have historically led to short-lived economic contractions; depressions are always preceded by banking panics. This current fiasco seems to fit the criteria for a "Minsky Moment" (to your point), but I wonder if that portends a deep economic recession vs. a short term speed bump. Ricks' thesis would seem to support the latter. He seems credible; he worked formerly at Citadel as a merger arb investor specializing in financials, then later at the US Treasury under the Obama admin, and now is a professor at Vanderbilt Law School.
Curious to hear your thoughts. Thanks again for your great work on this situation.
Yes, it needs to hit the real economy somehow to get a major effect. Minsky’s main discussions were how aggressive lending feeds a fixed investment-led boom. The UK panic (so far) is just about risk taking in the financial sector. Minsky talked about that, but it’s perhaps not truly a “Minsky Moment.” I haven’t seen the book mentioned, but it sounds reasonable.