You have just come from your annual medical checkup, where your doctor assures you that you are in robust health.
Walking jauntily down the street, you bump into a practitioner of alternative medicine. He takes one look at you and declares: “You have a serious tumour! It must be removed or you will die”.
You ignore him as you always have, and continue your merry way down the street. One day later, a stabbing pain suddenly cripples you, and you collapse to the pavement.
In agony, your call your doctor, who initially refuses to send an ambulance because he knows you are well.
When you lapse into a coma and stop talking mid-sentence, your doctor concludes that perhaps something is wrong, and sends an ambulance to take you to hospital.
Initially, the doctor waits for you to revive spontaneously, because he still knows there's nothing really wrong with you. But as your pulse starts to weaken, he reluctantly calls a retired doctor who had experience of a similar inexplicable malady in the distant past.
She prescribes massive doses of tranquilisers, painkillers, vitamins, and oxygen—all substances that had been removed from the medical panoply due to recent advances in medical theory. Reluctantly, your doctor follows his retired colleague's advice—and miraculously, you start to revive.
After a year of expensive medical treatment, you return to the same robust health you displayed before your inexplicable illness. Triumphant, if somewhat puzzled, your doctor declares you well once more, and releases you from intensive care.
As you stride confidently away from the hospital, you have the misfortune to once again bump into the practitioner of alternative medicine.
“But they haven't removed the tumour!” he declares.
One shouldn't have to spell out the details of such an analogy, but in times of widespread denial, one has to:
The final reason for me being a bear is that I am that practitioner of alternative medicine. Minsky’s Financial Instability Hypothesis has been ignored by conventional economists for reasons that are both ideological and delusional. A small band of “Post-Keynesian” economists, of whom I am one, have kept this theory alive.
According to Minsky’s theory:
That is where we were … in 1987. The great tragedy of today is that naïve Neoclassical economists like Alan Greenspan and Ben Bernanke allowed this process to continue for another three or more cycles than would have occurred without their rescues.
In 2008, they did it again—only with methods they would have disparaged a mere year earlier (‘Rational Expectations Macroeconomics’, a modern neoclassical fad, preaches that government intervention can’t influence the level of economic activity at all—yet another belief that reality has recently crucified). This time, while the rescue has worked, the recovery they expect afterwards can’t happen—because there’s almost no one left who will willingly take on any more debt.
This time, there’s no re-leveraging way out. The tumour of debt has to be removed.
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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