Financial Instability and the Political Economy of Trumponomics and Brexit
Saturday, Jan. 6, 2018 8:00 AM - 10:00 AM
- Chair: Devika Dutt, University of Massachusetts-Amherst
The New Triffin Dilemma
AbstractAccording to Pozsar (2011), there is a new kind of "Triffin Dilemma." Due to rising inequality, a shrinking numbers of large banks, and a ceiling on FDIC insured deposits, there is a shortage of “safe assets” (Caballero 2010; Gorton 2016). The private supply of safe assets has occurred through the system of “shadow banks,” and is based on repos, or Treasury Bonds. But the supply of US Treasury bonds is limited by the ceiling on public debt, and is constrained by neoliberal theories of limits to the size of government. As a result, there is a presumed shortage of "safe assets," just when the levels of inequality have increased the order of magnitude of "assets under management" which are in need of protection. There are also large accumulations of cash pools by large multinational corporations, often held overseas to evade taxes. The private provision of safe assets tends to reduce liquidity and increase costs of information, potentially leading to financial instability. Possible resolutions of this issue include 1) progressive taxes to reduce the size of the cash pools, 2) an increase in the ceiling for insured deposits, and 3) increasing support by the Fed for the role of “market-maker of last resort” (Mehrling 2010). This paper will conclude with the implications of each alternative.
Decision-making and Keynesian Uncertainty in Financial Markets: Brexit as a Case Study
AbstractThis paper makes two contributions. Firstly, it explores the presence on fundamental uncertainty in financial markets and its impact on individuals’ trading behaviour. Secondly, it tests the initial findings in practice, after a real world uncertain phenomenon, the announcement of Brexit. This research is based on two rounds of semi-structured interviews (before-and-after-Brexit-vote) with UK-based financial traders in 2016, and a 2017 online survey designed to validate interview results.
Financial traders acknowledge the presence of fundamental uncertainty in the markets, they describe it as unquantifiable, and they view the future as not entirely predictable. In the face of these knowledge limitations, traders consistently identify risk and uncertainty as separate concepts. One key result of our before-and-after Brexit-vote interviews, consistent with previous Post Keynesian research, is that traders recognise uncertainty as a key aspect of the market context they work in. Another result of our post-Brexit evidence, however, challenges the conventional wisdom that enhanced uncertainty invariably forces traders to reduce their risk-taking: after a period of time, traders increase their risk-taking, even knowing that they are trading under conditions that remain uncertain.
Brexit and the Discreet Charm of Haute Finance
AbstractThe paper examines Britain's Brexit dilemma from the point of view of Britain's position as an international financial intermediary. It reassesses critically Polanyi's concept of haute finance and argues that finance maintains social backwardness in Britain. The inability of a backward elite to modernise the economy and its institutions creates the social discontent that has been directed at Europe, and foreigners in general.
University of Massachusetts-Amherst
University of Redlands
- E0 - General
- G2 - Financial Institutions and Services