Dealing with the crisis

1
Dealing with the crisis

• Discussant
• Nobuharu Yokokawa
• Musashi University

2
Cyclical Crisis and Structural Crisis

• In Marxs theory of crisis, cyclical crisis is a
  physiological phenomenon that enforces self
  regulating character of capitalist economy.
• Accumulation of real capital plays main role and
  financial sector plays subordinate role.

3
Cyclical crisis

• Prosperity starts with accumulation of capital.
  In the prosperity banks function as financial
  intermediary.
• At the end of prosperity higher wages reduce
  industrial demand for loanable money.
• Then loose credit encourages speculation. When
  speculators cannot rollover credit, speculations
  collapse, and crisis starts.

4
Cyclical crisis

• In the depression, capital introduces a new and
  more productive method of production, which
  creates a relative surplus population and
  relative surplus value.
• Self regulating character of capitalist economy
  works only with the support of suitable
  international and domestic institutions.

5
Structural crisis

• Structural crisis is a systemic crisis of a
  capital accumulation regime.
• Changes of hegemon of capitalist world systems
  create the most serious structural crisis.
• In between, repetition of cyclical crisis
  accumulates problems and changes the characters
  of accumulation regimes.

6
Minskys financial instability hypothesis

• In contrast to Marx, Minskys financial
  instability hypothesis pays attention only to the
  monetary side of crisis.
• It does not pay attention to real accumulation of
  capital and relation between accumulation of
  money capital and real capital.

7
Increasing fragility of an accumulation regime

• Capital accumulation regime must allow cyclical
  up and down which is essential to solve
  physiological problems.
• We could observe over accumulation crises in the
  1950s and 1960s.
• Once wages went up in prosperity, they did not
  decline even in the depression, increasing
  conflict between capital and labour.
• The conflict finally destroyed the capital
  accumulation regime of the golden age in the
  1970s.

8
Financial fragility

• After the1980s, financial sector played main
  role.
• Boom and bust are created monetary.
• Current account imbalance -gt Short term capital
  flow -gt Boom -gt Bust -gt Depression.
• A lower volatility of GDP in this period may
  reflect less dynamism of economy.
• Ratchet effects appeared in the interest rate.
• Financial fragility increased last three decades.
  The crisis in the 2000s is a structural crisis.

9
Longevity of the dollar standard system

• The Bretton Woods system broke down in 1973. G7
  and other international cooperation played
  important role to extend the dollar standard
  system.
• Is it the US that forced Japanese yen to
  appreciate, or Japan and other countries that
  appreciated their currencies voluntarily and
  cooperated the USA in order that the
  international monetary system survive?

10
Can international imbalances be managed publicly?

• A world central bank can supply liquidity but not
  long term capital.
• It must be supplied by savings from structural
  surplus economies.
• The world central bunk functions here as a
  financial intermediary of the first resort.
  However can it pick up the winners among many
  candidates?

11
Regulation of the domestic credit system

• Commercial banks create deposit money. If there
  is no regulation it can create money indefinitely
  increasing both asset and debts in their balance
  sheet simultaneously.
• If banks function as financial intermediary why
  capital requirement is needed? In the 1950s and
  60s reserve requirement worked well in Japan
  without capital requirement.