Can "It" Happen Again?: Essays on Instability and Finance
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First Published in 2015. Routledge is an imprint of Taylor&Francis, an informa company.
financeandprofits:thechangingnatureofaMericanBusinesscYcles Cash payment commitments on outstanding instruments are contractual commitments (1) to pay interest and repay the principal on debts and (2) to pay dividends—if earned—on equity shares. These cash payment commit ments are money flows set up by the financial structure. A structure of expected money receipts underlies the various commitments to make payments on existing debts. Each economic unit—be it a business firm,
vALIDATION OF THE FINANCIAL STRUCTURE A debt is validated when maturing commitments to pay are fulfilled and expectations are sustained that future remaining commitments will be financeandprofits:thechangingnatureofaMericanBusinesscYcles fulfilled. By extension a debt structure, either in total or for various subdivi sions of the economy, is validated when on the whole maturing commit ments to pay are fulfilled and when expectations are that future receipts by debtors will enable
1950 through 1967. After 1967 the ratio began to rise and exhibit sharp fluctuation, hitting 9.4 in 1970, 8.3 in 1972, and 10.75 in 1974 before falling to 7.2 in 1977. It then increased to 8.5 in 1979. The high peaks hit in 1970 and again in 1974 indicate that at the tail end of the recent business cycle expansions the ability of business cash flows to sustain debt may well have been under pressure. Charts I and II showed the ratio of a flow (in Chart I, gross fixed invest ment) and a stock (in
committed to the fulfillment of contracts. Thus, the cash receipts of debtors must meet some minimal standard if the debts are to be validated. Furthermore, debts finance capitalistfinancialprocessesandtheinstaBilitYofcapitalisM only a portion of the positions in capital assets and investment in process. There is some minimum standard that the cash receipts attributed to capital assets have to meet if the debts and the prices paid for capital assets are to be validated. The validating
debt deflation and deep depression have taken place. In the years since the mid1960s there have been three episodes—1966, 1969–1970, and 1974–1975—when the economy was on the verge of a debt deflation. Nevertheless, it did not occur. In part this was because the Federal Reserve quickly intervened and bolstered the system with its guar antee to protect banks and other financial institutions; in part it was because a huge government deficit substitutes for investment in sustaining deficit