Nina Eichacker

In times of financial crisis, we expect monetary authorities to provide liquidity support to banks at risk of failure. However, governments often provide monetary support to banks at risk of failure through guarantees and direct lending to financial institutions, often in tandem with monetary authorities. At the same time, governments may require liquidity support in moments of crisis, when cyclical deficits rise, and bond market activity constrains access to funding. This paper introduces governments’ activity into both the Post-Keynesian theory of endogenous money as well as Mehrling’s ‘Money View’ of the economy. It demonstrates how government activity becomes more important during periods of heightened liquidity preference through its support of financial institutions, while governments may simultaneously become more vulnerable to private bondholders increased liquidity preference. Some governments are likely to face greater obstacles in providing liquidity and accessing funding...

In Risk and Ruin, Gavin Benke argues that we ignore Enron’s history and failures to our peril. The book provides a readable account that includes lots of rich history, institutional detail, and salacious anecdotes, making a convincing case for Enron as a harbinger of financial, environmental, and production crises yet to come in the first decades of the twenty-first century.

Many papers discuss causes of Iceland’s financial crisis, but none has examined what the Icelandic crisis revealed about international financial markets prior to 2008. Global financial markets’ failure to recognize the familiar signs of an oncoming crisis reflects either an ignorance of developing economies’ antecedents to Iceland’s financial liberalization and crisis, or an overriding belief that Iceland was somehow different. They also illustrate Keynesian and Minskyian theories about the instability of finance and its tendency toward crisis. This paper briefly reviews theories of the linkage between financial liberalization and crisis, empirical evidence of that connection, and analyses of Iceland’s financial crisis. It contributes a comprehensive depiction of Iceland’s macroeconomic fundamentals leading into 2008, as well as an explanation of how positive reports like Frederic Mishkin’s and Richard Portes’s as well as credit rating activity by Moody’s bolstered positive views of Iceland’s financial and economic stability. It culminates with an explanation of why Iceland’s crisis was a surprise in global financial markets, despite ample empirical evidence and reports by academics, policy makers, and private credit rating agencies that Iceland was destined for a collapse.

Much of the work examining the Eurozone crisis focuses on either the role of peripheral European states’ current account deficits, or German neo-mercantilist policies that promoted its export surplus. This paper considers how German financialization and input on the Eurozone’s financial architecture promoted those deficits, increased European systemic risk, and facilitated the onset of Europe’s subsequent crises. It argues that the increase in German financial sector competition encouraged those banks’ increase in securitization and participation in global capital markets, as well as German policy-makers’ support for financial liberalization embedded in the Maastricht Treaty. Financial liberalization of the Eurozone created a new marketplace for German financial institutions, which increased the risk of crisis as current accounts diverged between core states like Germany and peripheral states like Greece. Once global financial crisis ensued in 2008, German losses on international securitized assets prompted a retrenchment of domestic and international lending, paving the way for the Eurozone’s sovereign debt crisis. Reexamining the role of financial liberalization in facilitating German and European financial crises may prevent the Eurozone from repeating these performances in the future, at significant domestic, European, and global cost.

<p>The Routledge Handbook of Heterodox Economics and Democratizing the Economics Debate: Pluralism and Research Evaluation, two recently published books about heterodox economics and its role in broader academic and policy discourses, serve as an antidote to some recent popular narratives equating economics and economists with policies that are inherently pro-market, anti-regulation, and based in neoclassical theories. These texts illuminate challenges in current economic discourse about (1) the place of economic pluralism, (2) the role economics and economists should play in guiding policy relative to other social science disciplines, and (3) the consequences of the reliance of policy-makers on economists that train at the most elite institutions that are likely to recommend a narrow band of policies informed by a restricted range of economic theories. The Routledge Handbook of Heterodox Economics, edited by Tae-Jee Ho, Lynne Chester, and Carlo D'Ippoliti, presents positive visions for new questions that heterodox economists are researching, alternative explanations for global economic dynamics, and a counter-narrative to the notion that economists are bound to propose neoliberal policies based on neoclassical and new classical economic theories, and that economic analysis must demonstrate causality using different statistical methodologies to validate its rigor. Carlo D'Ippoliti's Democratizing the Economics Debate examines the dialectical process by which economic rankings prioritize economic work informed by a narrow range of theories, and serve as a springboard for economists studying and working at the most elite institutions to land in powerful government advisory positions. D'Ippoliti highlights the stakes for governments that continue to hire economic policymakers from these top-tier programs with limited demonstrated curiosity in theories that might be considered heterodox, and the benefits for the economics discipline as a whole for better engagement with pluralist economics writ large.</p>

In times of economic crisis, academics, policy-makers, and pundits often debate how much government debt is too much. This paper argues that discourses about fiscal space should consider several political economic factors beyond the ratio of fiscal deficits and debt to GDP when determining the sustainability of any economy’s fiscal deficit. These include political constraints on both government spending and taxation, financial and monetary dynamics in bond markets for sovereign debt, and the relative hierarchy of governments attempting to issue sovereign debt. While the federal governments of the US and Germany may easily issue and sell debt in private markets, smaller economies are more vulnerable to demand fluctuations, and will benefit from explicit commitments by monetary authorities to resume their historic roles as governments’ banks, especially during crises. By highlighting present political constraints, monetary structures, and market factors that may inhibit governments’ s...

Summary. This literature review examines recent work on the relationship between oil prices, wood prices, and consumer demand for biomass as an alternative energy source. By examining relevant externalities – positive and negative – that affect an emerging biomass industry as well as reviewing global experiences in the field, we can better understand the challenges such an industry faces in the United States. Studying the history of alternative energy programs, and biomass energy programs particular will help us begin to craft policy suggestions to encourage more sustainable energy policy that facilitates ecologically and economically sustainable biomass harvest for energy purposes.

This book analyzes how financial liberalization affected the development of the financial crisis in Europe, with particular attention given to the ways in which power asymmetries within Western Europe facilitated financial liberalization and distributed the costs and gains from it. The author combines institutional narrative analysis with empirical surveys and econometrics, as well as country-level studies of financial liberalization and its consequences before and after the 2008 Global Financial Crisis.

This literature review examines recent work on the relationship between oil prices, wood prices, and consumer demand for biomass as an alternative energy source. By examining relevant externalities – positive and negative – that affect an emerging biomass industry as well as reviewing global experiences in the field, we can better understand the challenges such an industry faces in the United States. Studying the history of alternative energy programs, and biomass energy programs particular will help us begin to craft policy suggestions to encourage more sustainable energy policy that facilitates ecologically and economically sustainable biomass harvest for energy purposes.

Many papers discuss causes of Iceland’s financial crisis, but none has examined what the Icelandic crisis revealed about international financial markets prior to 2008. Global financial markets’ failure to recognize the familiar signs of an oncoming crisis reflects either an ignorance of developing economies’ antecedents to Iceland’s financial liberalization and crisis, or an overriding belief that Iceland was somehow different. They also illustrate Keynesian and Minskyian theories about the instability of finance and its tendency toward crisis. This paper briefly reviews theories of the linkage between financial liberalization and crisis, empirical evidence of that connection, and analyses of Iceland’s financial crisis. It contributes a comprehensive depiction of Iceland’s macroeconomic fundamentals leading into 2008, as well as an explanation of how positive reports like Frederic Mishkin’s and Richard Portes’s as well as credit rating activity by Moody’s bolstered positive views of...

While the creation of the Eurozone facilitated endogenous money creation across members before 2008, liquidity crises after the Global Financial Crisis (GFC) revealed structural features and power asymmetries that engendered liquidity crises for members. The European Central Bank’s reluctance to act as a lender or dealer of last resort after the GFC pushed governments across the Eurozone to bail out domestic financial systems. Private creditors and eventually the Eurosystem governing council excluded peripheral banks’ and governments’ debt from private repo funding and Eurosystem funding operations, inhibiting peripheral NCBs’ attempts at liquidity relief. Sustained private demand for core governments’ debt allowed their NCBs to engage in expansionary measures, while representatives from the core tended to oppose broader relief, leaving peripheral governments vulnerable to the Eurozone Crisis. This paper analyzes Eurozone banks’, NCBs’, and governments’ balance sheets to illustrate ...

Ceteris Paribus, current account surpluses may be preferable to current account deficits. Export surpluses should increase domestic GDP, and they may lend economic and political power to industries and states in domestic and international systems. However, the frame of analysis matters when considering the net benefits or costs of pursuing current account surpluses: benefits of pursuing export-led strategies may change over time, they may be unevenly distributed within a given economy, and they may create problems for trade partners, depending on the trade-boosting strategies deployed. This chapter considers potential downsides of pursuing current account surpluses over time, across economic sectors, and at the international level. It surveys work on export-led growth, neomercantilism, and import-substitution strategies in work by a range of economists in Post-Keynesian, structural development, and world-systems theories. Every economy cannot run a trade surplus all of the time: the...

This paper asks why Landesbanks, public banks designed to provide credit to German firms in regions underserved by private banks, embraced risky asset and liability balances in the years before the Global Financial Crisis, and subsequently lost billions of dollars in write-downs after the US subprime mortgage bubble burst in 2007. It argues that the German government’s decisions to eliminate protections for Landesbanks increased competitive pressure for public banks, increased the propensity for those banks to adopt risky strategies in order to maximize profits. These actions by Landesbanks and large private banks exposed German households and firms to greater risk and financial vulnerability, and indirectly exposed European financial systems to subprime mortgage risk. It uses balance sheet analysis for different sectors of German finance to show that Landesbanks and Germany’s large private banks adopted higher risk asset and liabilities, engaged in more international activity, and ...

This paper argues that financial liberalization played a significant role in destabilizing Western European economies since the financial crisis of 2008. This process owes much to changes in the financial governance of Western Europe in the late 20th century. This contrasts with the conventional story that the Eurocrisis is primarily due to peripheral countries’ excessive government spending or the German government’s neo-mercantilist policies. The paper shows a robust and statistically significant positive correlation between gross locational capital flows over GDP and the onset of financial crisis, using linear probability models and logit regressions, providing evidence for the hypotheses.

This paper argues that financial liberalization played a significant role in destabilizing Western European economies since the financial crisis of 2008. This process owes much to changes in the financial governance of Western Europe in the late 20th century. This contrasts with the conventional story that the Eurocrisis is primarily due to peripheral countries’ excessive government spending or the German government’s neo-mercantilist policies. The paper shows a robust and statistically significant positive correlation between gross locational capital flows over GDP and the onset of financial crisis, using linear probability models and logit regressions, providing evidence for the hypotheses.

Many papers discuss causes of Iceland’s financial crisis, but none has examined what the Icelandic crisis revealed about international financial markets prior to 2008. Global financial markets’ failure to recognize the familiar signs of an oncoming crisis reflects either an ignorance of developing economies’ antecedents to Iceland’s financial liberalization and crisis, or an overriding belief that Iceland was somehow different. They also illustrate Keynesian and Minskyian theories about the instability of finance and its tendency toward crisis. This paper briefly reviews theories of the linkage between financial liberalization and crisis, empirical evidence of that connection, and analyses of Iceland’s financial crisis. It contributes a comprehensive depiction of Iceland’s macroeconomic fundamentals leading into 2008, as well as an explanation of how positive reports like Frederic Mishkin’s and Richard Portes’s as well as credit rating activity by Moody’s bolstered positive views of Iceland’s financial and economic stability. It culminates with an explanation of why Iceland’s crisis was a surprise in global financial markets, despite ample empirical evidence and reports by academics, policy makers, and private credit rating agencies that Iceland was destined for a collapse.

Much of the work examining the Eurozone crisis focuses on either the role of peripheral European states’ current account deficits, or German neo-mercantilist policies that promoted its export surplus. This paper considers how German financialization and input on the Eurozone’s financial architecture promoted those deficits, increased European systemic risk, and facilitated the onset of Europe’s subsequent crises. It argues that the increase in German financial sector competition encouraged those banks’ increase in securitization and participation in global capital markets, as well as German policy-makers’ support for financial liberalization embedded in the Maastricht Treaty. Financial liberalization of the Eurozone created a new marketplace for German financial institutions, which increased the risk of crisis as current accounts diverged between core states like Germany and peripheral states like Greece. Once global financial crisis ensued in 2008, German losses on international securitized assets prompted a retrenchment of domestic and international lending, paving the way for the Eurozone’s sovereign debt crisis. Reexamining the role of financial liberalization in facilitating German and European financial crises may prevent the Eurozone from repeating these performances in the future, at significant domestic, European, and global cost.

Many papers discuss the causes of Iceland’s financial crisis, but none has directly compared Iceland’s financial crisis to past examples of financial liberalization that have led to a financial crisis. Iceland’s crisis of 2008 has precursors in industrialized and developing countries. Global financial markets’ failure to recognize the familiar signs of an oncoming crisis reflects either an ignorance of these antecedents, or an overriding belief that Iceland was different. This paper compares Iceland’s financial liberalization process and crisis with experiences in Turkey, Latin America, and the USA. It argues that Iceland mirrors Turkish and Latin American stories of hot money in-flows, and financial instability. The political and social apparatus that allowed Icelandic banks to hide fraudulent business in the presence of international criticism reflect financial dynamics in the USA. This work draws attention to the conventional narrative’s blind spots about relative costs and benefits of financial liberalization and finance-led growth.