By Tim Congdon
Through contemplating contemporary and old occasions corresponding to the nice melancholy, episodes of growth and bust within the united kingdom, and the malaise in Japan within the Nineteen Nineties and the early twenty first century, financial economist Tim Congdon is ready to exhibit how financial coverage impacts either monetary markets and the true economic climate. In a majority of these episodes, fluctuations in funds provide progress ended in booms or busts in monetary markets and have been linked to turbulence within the fee point and in output and employment. The the most important linkages among financial coverage and monetary markets, argues the writer, contain vast funds, now not slim funds. Non-bank monetary associations, resembling pension cash and insurance firms, play a serious position in transmitting fluctuations in cash development to asset prices.This monograph is a crucial contribution to the an important debate at the position of economic aggregates in environment financial coverage. Congdon's argument, that ignoring financial aggregates can result in profound instability within the genuine financial system, is compelling.
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Example text
9 per cent – 76 per cent over the whole period. Share prices continued to rise in 1999, partly in response to advances in the US stock market. In 1999, however, the monetary background in the 73 money and asset prices in boom and bust UK itself changed significantly. M4 growth slowed, while companies reduced their takeover activity and issued more paper (mostly in the form of bonds). The financial institutions received less cash from bids, and saw cash being depleted by the bond and equity issues.
E. the personal sector) and it is not clear that the phrase ‘needs of trade’ has any application to them. A high proportion of bank and building society deposits is held by people who are retired, and for them the notion of the ‘needs of trade’ is incongruous. More to the point for the current exercise, the Kaldorian thesis simply does not work in the UK financial sector during the boom–bust cycles. 12 The short-term bank borrowings of these institutions were tiny relative to other balance-sheet magnitudes in the Heath–Barber and Lawson booms, and it is difficult to believe they figured centrally in management decisions.
To some extent Minford’s argument is simply a misunderstanding. Of course, the assets and liabilities of financial institutions (and indeed of companies) are equal, and their net wealth is always nil. But the economy’s assets must – of course – belong to someone. If a mutually owned life assurance company holds assets in the form of a large portfolio of equities, it may have liabilities to policy-holders equal to these assets and no net wealth. But that does not mean its policy-holders also have no net wealth!