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November 23, 2009



For the answer to that, a look at Steve Keen on Minsky would help.


It might be theoretically possible to argue such a position in hindsight, but it would have been impossible to use these arguments to justify the policy at the time. Too voodoo.


Your analysis assumes the 'saving glut' is exogenous (as many policymakers like to believe because it exonerates them from responsibility). Isn't it possible that ultra-loose monetary policy in the west helped to inflate the glut? In the UK, the chancellor's decision to force the Bank of England to target a different (and lower) inflation rate also added to the monetary excess. By holding short-term interest rates at artificially low levels, western central banks contributed to the fall in long-term interest rates, allowing governments to believe they could finance bigger deficits more easily. The saving glut was simply part of the transmission mechanism for translating lower short rates into lower long rates.

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