George Magnus, a strategist for UBS, was one of the early popularizers of Hyman Minsky and was similarly one of the lonely few to worry about the financial and economic fallout of dealing with unsustainable levels of debt.
His comment in today’s Financial Times, “Is there time to avert a Minsky meltdown?” is cautiously optimistic that the global financial system can be kept from collapsing, but he stresses that governments need to persist with coordinated, timely action, since major banks have hundreds of billions of short term debt maturing in the next few weeks (hhm, yet another use of the TARP?)
But even if those efforts succeed, Magnus does not see smooth sailing ahead:
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 ex panded 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 would be churlish not to welcome the UK government’s trailblazing initiative and note the European response. The US must also move to contain deleveraging and forced asset sales quickly. This comprehensive assault on financial instability is the only solution that Minsky himself would have approved.