Some Comments on the Recovery

I have not commented on the economy for some time, and thought a few remarks would be appropriate.

The first is how prescient Minsky's work from twenty-five years ago has proved to be. Especially this time, the built in economic stabilizers of big government coupled with unprecedented monetary and fiscal interventions quickly turned around what initially looked like Great Depression 2.0. And it is quite likely that as the economy again takes flight, inflation and thus interest rates will become a problem.

Perhaps more worrisome, however, is that many of the underlying issues that precipitated this near death experience remain unresolved. While banks were relieved of many of the toxic assets that plagued their balance sheets, many others were simply defined out of existence through accounting rule changes and thus remain as a sort of potential cancer. And while there is much talk of reversing the deregulation of the past several decades, there has been very little movement to actually do so.

It would seem then, that in many ways we have avoided this cataclysm but have set the stage for the next. Like an addict whose health recovers quickly, we fool ourselves that it was not so bad and that we can carry on with only cosmetic changes.