Great Graphic: Debt Crises

This Great Graphic comes from the FT Alphaville's Joseph Colterill's post on Cyprus.  The data itself is from the IMF.  It provides some useful metric of a number of large banking crisis since 1970.  The US and European banking crises are not included.  

What stands out to me is the frequency and cost.   The costs, as depicted here, are in terms of the fiscal price (relative to GDP) and the loss of output. A better and more thorough understanding of the benefits need also need to be assessed. 

The history of banking is the history of financial crisis.  Leavings aside malfeasance, financial crisis often seem to occur on the downside of the credit cycle.  

It is not sufficient to smooth out the business cycle through better inventory management and better understanding of demand and the like.  The credit cycle itself needs to be tamed.   Like the business cycle, it is unlikely to be repealed, but the amplitudes can be reduced and and the cycle elongated.  This seems only possible with a combination of industry self-regulation and public (government) regulation. 

The idea that volatility can be shifted from the real economy into the capital markets remains intriguing, but a lesson drawn from the recent crisis and a closer reading of Minsky and his students, is that there is a feedback loop back into the real economy.  Long periods of rising financial asset prices sounds good, but it breed its opposite and at tremendous costs. 

Great Graphic: Debt Crises Great Graphic: Debt Crises Reviewed by Marc Chandler on October 19, 2012 Rating: 5
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