The Deepening Global Financial Crisis: From Minsky to Marx and Beyond

This article analyses the financial crisis in the US, investigating both empirically and theoretically its origins, recent evolution, and potential future impact on the real economy in the US and abroad. Part I undertakes an empirical analysis of the present crisis, from its apparent origins in the subprime mortgage market in the US, to its spread to other US and global capital markets and its transmission to the real economy in 2008 and beyond. The analysis further explores the deeper origins and evolution of the current crisis, from the 1998 bail-out of the Long Term Capital Management hedge fund, through the ‘dotcom’ bust of 2000, recession of 2001, to the subprime mortgage crisis and subsequent events through year-end 2007. The analysis considers briefly how the current financial crisis is similar and different from prior financial crises in the US since the 1970s. It concludes the current crisis is fundamentally a solvency crisis and thus substantially different from prior financial crises, that it has just begun to fully unfold, and that it will inevitably deteriorate further in 2008 and beyond, resulting in a major recession in the US and greatly increasing the odds of a synchronized real downturn in the major world economies in 2009 and beyond. Parts II and II of the article shift from descriptive-empirical analysis to an exploration of the financial crisis from a theoretical perspective. In Part II, an assessment of the current financial crisis begins with an initial consideration of post-Keynesian economist, Hyman Minsky, and in particular Minsky\u27s key notion of his ‘financial instability hypothesis’. Part II explores the limits of Minsky\u27s hypothesis and suggests how it might be developed and extended further in light of the current financial crisis. In Part III, the article begins a second theoretical exploration by considering Marx\u27s categories of the organic composition of capital and the falling rate of profit in light of some of Marx\u27s prescient, but undeveloped, thoughts on the role of money and finance from Vols. II and III of Capital. Suggestions are offered on how Marxist categories might be expanded to better reflect new commodity money forms of capital in the 21st century capitalist economy, as well as possibly account for disproportionalities in relative rates of profit between financial and real sectors of capitalist economy today