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Every decade or so, with regularity, the world seems to go through a significant economic or financial crisis triggered by some or other "unexpected" shock: *
by cs702 7y ago
Every decade or so, with regularity, the world seems to go through a significant economic or financial crisis triggered by some or other "unexpected" shock:
* The current crisis, starting now, in 2020;
* The global financial crisis from 2008 to the early 2010's;
* The dotcom, telecom, and tech bust of the early 2000's;
* The Asian debt crisis of the late 1990's;
* The Latin America debt crisis of the 1980's;
* The oil shock and stagflation crisis of the 1970's;
In each of these crises, a significant swath -- or all -- of the world's financial infrastructure has seized up, requiring government intervention to prevent collapse.
A natural question to ask is whether the financial infrastructure we have today has been well-engineered to be robust to these remarkably regular shocks.
Judging by the regular seize-ups, it doesn't seem to be.
- js8 7y ago> A natural question to ask is whether the financial infrastructure we have today has been well-engineered to be robust to these remarkably regular shocks. Of course it isn't. If you go back in history even further, the pattern continues. That was the reason why Keynes' General Theory was developed. But people still refuse to believe that the instability is internal to the (capitalist) system. The economic theory needs to move away from equilibrium towards fully dynamic models, for example those that Steve Keen is developing.
- salawat 7y agoPeople are terrible at grokking cycles with periodicity greater than about 1/10th of their lifespan I've noticed. Something about the lure of "everything will be different" and subpar internalization of the lessons of the past just seems to end up causing unholy amounts of pain in the long run.
- kaffeemitsahne 7y agoIf there is government intervention every time, naturally there is no reason for anyone to implement robustness measures.
- helen___keller 7y agoI mean, actions by the Federal reserve and congress are both part of the system so it's a little unfair to say the system should work without government intervention. Particularly this time around, healthy and well run businesses following reasonable best practices are being decimated. And why shouldn't they? A large percentage of our economy was just shut off. Add in leverage - which isn't inherently a bad thing - and suddenly you have a recipe for disaster with a system wide increase in debtors needing to default. We need government intervention because the free market solution to half of businesses being forced to close, is for those businesses to go under and their employees to starve and their banks get squeezed and so on
- jkhdigital 7y ago> healthy and well run businesses following reasonable best practices A business with zero debt financing would not go bankrupt during this crisis, but they would still have to lay off employees in the meantime, and those employees might "starve" without another source of income. I really, really don't understand the need to bail out companies here. If the problem is a loss of income for the employees, then strengthen unemployment insurance. If the underlying business was sound, then it will start back up again when the crisis is over. If the owners of the business were leveraged and cannot sustain debt payments during the crisis, then they can go into bankruptcy protection and emerge with new ownership.
- helen___keller 7y ago> A business with zero debt financing would not go bankrupt during this crisis There are fixed obligations that can exist outside of debt financing. Rent, for example, is one that everybody is familiar with. Anyways, I generally agree that helping the employees is more important than saving the businesses. If a business does die, it hurts some current investor or proprietor and benefits some future investor or proprietor after the crisis is over, with some efficiency lost in between as assets are sold off and eventually bought back up (and probably you get a better off company in the long run as a personal opinion). I'm just saying, it's not necessarily some moral fault that a business doesn't have the structure to survive the a pandemic. This is outside of normal recession-preparation.
- asn0 7y agoWhat happened before fiat currency allowed governments to step in, in the way they do now?