A time for action

Percent change in financial assets of the financial sector:

Graph #1: The Recent "oops" in Financial Assets of the Financial Sector

The low of Q2 2022 makes the low of Q4 2008 look like a plaything.

Silicon Valley Bank...
Signature Bank...
First Republic Bank...

oops!

Next graph shows the same financial assets, in millions of dollars:

Graph #2: Comparing the oopses

Maybe they are not "oops". Maybe they are "yikes".

I should say that on a log scale graph, the recent shock is about the same size as the 2007-08 shock. Not twice as big. So the problem this time is "only" about as serious as the problem last time, not twice as big. Lucky us. 

Still, something has to be done. Finance is too big, too costly, and too unstable to be left to its own devices. Too big, too costly, and too unstable to be managed by people who think like bankers.

And yes, I'd love to see the financial sector get smaller, and yes, that means a decrease in their financial assets. But I don't want them to take the whole economy down with them. I want a gradual transition from excessive reliance on credit (EROC) to greater reliance on money-that-doesn't-cost-interest. I want to reduce the cost of using money as a percent of the cost of living and the cost of doing business. That's how we fix the economy.

I want finance to be the size that best promotes economic growth. But we must not forget to include the cost of finance when we figure the size that best promotes growth. They must not forget.

Considering that the economy slowed in 1974, and has bounced back intermittently if at all, I think it is safe to say we need less debt now than we had in 1974. Less, relative to GDP. And a smaller financial sector than we had in 1974.

I think Minsky would say 1966, not 1974. I'm good with that. The level of debt and the size of finance that we had in the early 1960s is probably about right. We should reduce debt and finance to the size they were before things started going bad. 

But the trick is to do it before things start going bad. The way things are now, with our policies and our policymakers, we don't worry about it until the banks start failing.