Financial Fragility and Central Bank: Are Minsky's Crisis and Austrian Business Cycle are Complementary?

Abstract

This article explains why Minsky's post-keynesian explanation tells only one side of the crisis' story. Indeed, the financial fragility of markets explains mainly the activity of Central bank i.e. the lender of last resort which increases the moral hazard phenomena and the socialization of risks. The regulated capitalism is, in this perspective, the cause of market instability and financial fragility. Indeed, moral hazard encourages commercial banks to take risks. In that respect, the economic policies implemented to manage the crisis of 2008 are inadequate.

Are Banks Too Many? A Theoretical Possibility and a Policy Issue

“…What is sought policy-wise is the counter-cyclicality of money supply and at least acyclicality of tax policy, as these would be conducive to, among other things, bank-numbers rationalization along with some macroprudential policy, targeting the number of banks directly. Although knowledge of the macroprudential tools is still limited, and there may be coordination problems with microprudential policies, evidence suggests that these tools do reduce procyclicality (Claessens, 2015), that at least a combination with monetary policy whenever circumstances require so in the Swedish fashion of "leaning against the wind" is welcome (Svensson, 2018), and that from an Austrian-School perspective, the destabilizing role of central banking can be minimized (Facchini, 2015). But again, the current view about prudential policies is linked to financial crises, while herein, they are invoked on as a systematic policy means against procyclicality.…”