The Global Money Printing Probably Would Succeed Averting A "Mynsky Meltdown"

The U.S. government will soon write checks for $250 billion to shore up the balance sheets of nine banks - Goldman Sachs, Morgan Stanley, J.P. Morgan Chase, Bank of America Corp, Citigroup, Wells Fargo, Bank of New York Mellon, and State Street Corp - as other industries begin lining up to claim their fair share of the newly expanded government largess.

The $250 billion equates to more than a thousand dollars from every U.S. taxpayer.

For the moment at least, it seems that policymakers have succeeded in averting a "Mynsky Meltdown" after having clearly experienced a "Mynsky Moment".

What could go wrong? George Magnus explains:

Even if a financial meltdown is averted, we should be under no illusion that the deleveraging in the financial and household sectors will stop. As a result, four big battlegrounds remain.

First, there is a high possibility of further bouts of financial stress and failures. Money markets are still broken and recovery will take time.

Second, illiquidity, a preference for cash-type instruments, even over government bonds, and a considerably ex­panded supply of government bonds raise the threat of an untimely increase in bond yields.

Third, the global recession that has started may yet turn out to be sharper than expected – and certainly longer. This will bring sustained, and some new, credit risks.

Fourth, much slower growth and the risk of some home-made financial crises in emerging markets warrant close scrutiny.

It seems that almost all of these are sure to happen.

As unthinkable as the prospect might be, what central banks and governments are now doing could well be the "new normal" for some time to come.

Source :

The Mess That Greenspan Made: So far, Minsky would probably approve, October 14, 2008 06:57 am

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