ZERO EQUILIBRIUM

- By Chinedu Okoye  Chapter 6 Financial Instability Revisited: The Economics of Disaster. Here the repeated occurrences of financial crises is discussed and analysed in detail. He looked to answer the questions whether; the fundamental changes in the US economic system can prevent another great depression or whether "our knowledge and power is still inadequate as that crises and deep depressions are still possible." Minsky argues here that, "fundamentals are unchanged" and "sustained economic growth, business cycle booms, and the accompanying financial developments still generate conditions conducive to disasters for the entire economic system." He follows that every disaster is accompanied by a combination of three things; an initial displacement or shocks, structural characteristics of the system, and human error. His theory argues that "the structural characteristics of the financial system change during periods of prolo...

- By Chinedu Okoye    Summary: The Naira is currently selling for N1560/$1 (as at the time of this article), on the EFEM market, and N1605/$1 at BDCs. These levels are within the uperband of the projected range in the paper  Zero Equilibrium Naira Outlook 2025  . The Naira at the N1500/$1 - N1600/$1 range, is seen as relatively strong, given that the various headwinds the currency faces. Though volatility is down, a move downwardss remains more likely than a move upwards.   ZE Outlook vs Reality: Given our projections at last year's end, the Naira has largely been at levels expected —i.e., N1500/$1 [±20%]. Naira staying within this range at just below the bottom 20% of the range is no surprise, given the slide in Oil prices, and foreign debt repayments. However, it would seem that the Nigerian local currency would not be holding above the N1500/$1 mark anytime this year. Even as it continue...

- By Chinedu Okoye  Synopsis: Fiscal authorities act as a stabilizing mechanism in the goods and services market in periods of high uncertainty and slow or even negative output growth. However a level of efficiency is required if the expansion is to yield the intended benefits. Tis is because, indiscriminate deficit spending with no distinct purpose could be hyperinflationary. A prioritized budgetary allocations according to value added on a cost-benefit basis should be the none of any effective fiscal expansion. Not doing so could lead to erratic spend and income redistribution that creates economic imbalances and Stokes inflationary pressures, rather than provide economic stability. Fiscal expansion must be more about stabilizing and supporting the markets, with job creation as an inevitable consequence, such that the jobs created as a result add value to society. The effects of a crowding-out of private investment is more likely to occur when deficit spending c...

-By Chinedu Okoye  A Return to Keynes and a bit of Simmons : Here Minsky begins with Henry Simmons view of money which recognizes its endogenous nature, and "the impossibility of managing money by trying to control the quantity of some specific set of debts". He advocated strict limitations of liability of enterprises and binding constraints in the permissible activity of financial institutions. But he [Simmons] then went on to proposed the elimination of financing done "through banks and other intermediaries with short liabilities" Unfortunately as Minsky points, banks and other shorterm financing is a major link in the investment process in a capitalist economy. For even though capital assets could be financed long, other production activity are short-term affairs that require short-term financing. "An essential attribute of modern capitalism is that positions in both capital assets and investment in process are financed by a combination...

- By Chinedu Okoye  Abstract: In this paper I explore how Minsky's Financial Instability Hypothesis (FIH) which originated in the context of the American capitalist system, can be adapted to understand economic instability in Nigeria —a structurally different, underdeveloped and resource-dependent economy. The paper doesn't just mechanically apply Minsky but, interrogates where it fits, where it breaks and structural realities that alter its conclusions. Assessed here, is the mismatch of assumptions, the nature of instability, Ponzi like characteristics of economic entities including the government, policy constraints, and the need for structural reforms  Minsky's FIH assumes deep innovative financial markets and efficient and/or stabilizing government spending. However unlike the American economy in the 1960s, Nigeria lacks these attributes, with shallow financial markets and government spending constrained by debt, making for a poor transmission of demand mana...

- Review By Chinedu Okoye  Household Holdings of Financial Securities : Household financing of securities is a often regarded as a Ponzi financing if interest payments exceed the dividend payments expected. They are seen as speculative when expected dividend/income ratios exceed interest rates.  Stock market financing can only be seen as hedge, when "the term to maturity of the debt is so long that the borrowing unit does not have to refinance it's position". The question now arises "why would a rational banker finance such a security holding?" And the "obvious answer" Minsky points is the dividend yield and price appreciation expectations. Household financing of securities can be destabilizing to the economy if there is a significant portion of Ponzi financing posture involved, relative to the whole. This is where dividends fall short of interest payments and the hope for redemption is an eventual price appreciation. A speculative boom is ...