Economy And Its Impact On The Economy Essay - 1424 Words

Sometime in late 1950’s Minsky started warning about the gradual shift of the economy from a very robust financial system that was stable and with no financial crisis in the early postwar period. He had called with his analysis that gradually over time debts in the private sector would tend to build up and increasingly risky financial innovations would increase over time. He is very famous for the statement that stability itself is destabilizing. Although things seem very stable today, gradually over time that stability would build confidence in individuals to take increasingly risky positions in assets. The model that he had built explains financial crisis in the economic system. He brings up that supply of credit increases during boom and abruptly decreased during economic slowdown. It seems almost intuitive that from a standpoint of an investor the great time to invest is when economy is booming to increase his or her profitability. Lenders as the investors become increasin gly optimistic about their return and they both become less sensitive to risk. But when the economy starts slowing down investors sell out their holding to not to lose more of their assets making the economy even more worse off. All of the New Deal structure that have been put in place in the economy during the great depression, drove tremendous buildup of government debt in World War II and gave a very safe asset for the private sector. This would be in a sense leverage, safe government debtShow MoreRelatedThe Impact Of Economy On The Economy816 Words   |  4 Pages †¢ The economy continues to experience stable personal income growth, increasing 0.4% in April. On a quarterly basis, personal income rose 4.1% in the first quarter, staying within the higher-than-4% trend that started in the first quarter last year. In the first quarter, personal income rose to $15,129 billion, higher than the 2014 fourth quarter of $14,979 billion. 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