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OTTAWA—In a report released today by the Canadian Centre for Policy Alternatives (CCPA), two prominent economists warn of the ongoing the inherent instability of financial markets.
The report, by Doug Peters, former Secretary of State (Finance) and former TD Bank Chief Economist, and economic consultant Arthur Donner, analyzes the recent meltdown in U.S. and European financial markets and finds it was a classic “Minsky moment”—a term named after economist Hyman Minsky to describe a moment of financial frenzy.
“A Minsky moment occurs when too much leveraging causes asset prices to collapse, credit to dry up and the economy goes into a tailspin,” explains Peters.
“Financial markets are now recovering, largely because massive amounts of private debt have been assumed by the public sector. It has mainly been government spending that has averted a longer and deeper recession.”
“The recent exaggerated concerns over government debt and deficits are neither well understood, nor for the most part even rational,” says Donner. “Only when the private sector takes on the task of investing again and creating jobs can the public sector debt and deficits be reduced.”
According to the report, it’s now necessary to rethink the regulatory environment that allowed the Minsky moment to occur in the first place—especially in the United States.
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The Global Financial Meltdown: Can We Avoid Another Minsky Moment is available on the CCPA website: http://policyalternatives.ca
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