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Finance as Perpetual Orgy. How the ‘new alchemists’ twisted Kindleberger’s cycle of “manias, panics and crashes” to “manias, panics and renewed-manias”

José Gabriel Palma ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: The analysis will focus on how the traditional Kindlebergian financial-crisis cycle of “manias, panics and crashes” has been twisted so that now policymakers make sure that any panic is immediately followed by a renewed mania. Due to a “secular-stagnationists”-style thinking, central bankers, treasury officials and politicians - the ‘new alchemists’ - now believe that only a perpetual-mania can deliver some resemblance of growth. So, they persist in pumping liquidity and relaxing monetary conditions, no matter how much this violates every possible principle of markets economics, and regardless of the fact that the current policies to reactivate mature economies (rocketing the net-worth of a few individuals) have already been tried and failed post-2008. One by-product of this new perpetual-mania is that emerging markets have become what I have labelled “the financial markets of last resort”, and commodities “the financial asset of last resort”. That is, most emerging markets now don’t have to put up anymore with international finance being a “sellers” market (where they had to knock and beg); now, it is the international speculator who has been pushed into a yield-chasing frenzy in emerging markets. This new “buyers” market has proved to be a mixed blessing for emerging markets, as many of them have joined the ‘everything rally’ - in which you have nothing to lose but your real economy.

Keywords: manias; panics; financialisation; QE; excess liquidity; ‘disconnect’ between the financial and the real worlds; emerging markets; Latin America; Asia; Keynes; Kindleberger; Minsky; Buchanan (search for similar items in EconPapers)
JEL-codes: D70 D81 E22 E24 E51 F02 F21 F32 F40 F44 F63 G15 G20 G28 G30 G38 L51 N20 O16 (search for similar items in EconPapers)
Date: 2020-10-08
New Economics Papers: this item is included in nep-his, nep-hme, nep-mac, nep-mon and nep-pke
Note: jgp5
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