WHAT HYMAN P. MINSKY SAID ABOUT FINANCIAL CRISIS

Abstract

The current financial crisis has also actualised the work and ideas of the American economist Hymen P. Minsky. In his time almost unknown in America for many years after his death, he has been often mentioned in the academic world and the general public. Now many refer to him because in his work he had practically envisioned the occurrence of large financial and economic crisis that we were struck by. Minsky was a Keynesian and he was ignored because of his ideas that essentially differed from the dominant schools of economic thought. His analysis focuses on the mode of financing the economy and the formation of asset price bubbles, which inevitably leads to bubble explosion, losses and recession. Minsky emphasizes the role of bank credit, which is the "rocket fuel" for prices growth and creation of excessive optimistic expectations and euphoria in some asset markets. The euphoria is logically followed by the bubble explosion, ("Minsky moment"), a drastic drop in asset prices, a sudden reduction in credit ("Minsky meltdown") and collapse. In this context, Minsky talks about the inherent instability of capitalism and presents "a financial instability hypothesis." However, Minsky believes in capitalism, but not in the wild and unbridled capitalism of new liberals, rather in democratic, regulated, based on New Deal, with institutional financial arrangements governing the financial sector and preventing the bubble creation and the crisis. Minsky argues for more equitable distribution of incomes in the U.S. and greater social role of the state. Minsky expanded the boundaries of discipline because he focused on the structural, social and political issues. Modern financial economic crisis, like many previous crises, took place exactly according to the formula which Minsky had precisely formulated. Even the bubbles that occurred in Bosnia and Herzegovina (stock market and real estate market) followed by credit expansion had its course precisely following the Minsky formula.