Waarin Magnus Minsky’s Moment ziet.
George Magnus, econoom bij zakenbank UBS, publiceerde gisteren een artikel in de Financial Times dat ingaat op het Minsky verhaal.
Ik hou niet zo van het publiceren van lappen tekst van andere publicaties maar hier is een deel van zijn stuk:
What this Minsky moment means
By George Magnus
Published: August 22 2007 19:14 | Last updated: August 22 2007 19:14
The “Minsky moment” in financial markets – the point where credit supply starts to dry up, systemic risk emerges and the central bank is obliged to intervene – has duly arrived. The Federal Reserve’s decision to lower the discount rate last week, while largely a symbolic act, was greeted with much enthusiasm – not least because of a sense of relief that the Fed was prepared to act. This followed a week in which both the Fed and the European Central Bank had injected large amounts of liquidity to help maintain orderly markets. This week the Bank of England also injected liquidity into UK markets as credit supply and funding tightened up.
In my view, two main propositions define the outlook. First, the flight from debt in this downswing may be as potent as the rush towards it was on the upswing. In the US, the credit share of gross domestic product rose from 270 per cent in 2000 to 340 per cent in early 2007, mainly as households and financial institutions relied on borrowed money or leverage to increase spending on goods and services and assets. It is most likely that the reduced availability of cheap credit is going to lead to a sharp reverse in spending.
Second, current credit cycle concerns are about solvency, not liquidity per se as was the case in 1998, after which the world economy recovered quite promptly. This time the problem is about solvency among homeowners, builders, mortgage providers and financial institutions. Despite the fact that aggregate corporate balance sheets are in reasonably good shape, the rapid deterioration in financial conditions and rising cost of capital will almost certainly lead to higher default rates. Currently, most people are focused on the availability of capital. But in due course the price of capital will become more significant and tend to depress borrowing, capital raising and capital spending and employment.
The US, of course, is on the front line, but there will be knock-on effects elsewhere. Europe and Japan should expect to slow down in sympathy as financial and capital market developments join with trade linkages as dampers of growth momentum. But unless the US goes into a deep recession or there are country-specific financial or housing market shocks, Europe and Japan may be spared a worse outcome. Asia, and many emerging markets that have strong current account positions, high reserves, plentiful liquidity and strong corporate balance sheets, would appear to have learnt their lessons of 1997-98 well. The threats to growth in most cases appear to lie in the as-yet-uncertain impact on growth in developed economies, especially the US.
The most likely outcome will not be a total decoupling in which the US takes it on the chin and other regions get off scot-free. The world economy is likely to lose momentum and the only question is how much. This will depend on the extent of the US slowdown.
Lower interest rates might work again. But downside risks to house prices and construction remain, with threats of an increase in both housing inventories and home repossessions. Added to these worries is an increase in the cost of capital, a cyclical switch from building up debt to rebuilding savings and probable declines in consumer and business confidence. Taken together, these all suggest that the business cycle is going to get quite rough.
The writer is senior economic adviser, UBS Investment Bank
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