Good column from Wolfgang Munchau in the FT glossing Hyman Minsky to argue that we’ve made an unstable system less stable:
Our present situation can give rise to two
scenarios – or some combination of the two. The first is that central
banks start exiting at some point in 2010, triggering another fall in
the prices of risky assets. In the UK, for example, any return to a
normal monetary policy will almost inevitably imply another fall in the
housing market, which is currently propped up by ultra-cheap mortgages.
Alternatively, central banks might prioritize
financial stability over price stability and keep the monetary
floodgates open for as long as possible. This, I believe, would cause
the mother of all financial market crises – a bond market crash – to be
followed by depression and deflation.
In other words, there is danger no matter how the
central banks react. Successful monetary policy could be like walking
along a perilous ridge, on either side of which lies a precipice of
For all we know, there may not be a safe way down.