Credit, indebtedness and economic growth

A tale of two (capitalist) regimes


The issue of credit, and of bank activity, has been on the forefront of economic debates since the beginning of the current crisis. Notions like “bubbles” or Ponzi-credit had become commonplace[1]. Nevertheless quite frequently fundamentals of a modern capitalist economy have been forgotten. This leads to some misunderstanding about credit, debt and the logics of the economy. Credit can be the best or the worse. It heavily depends of financial institutions and of the general macroeconomic framework of a given economy. It is of the utmost importance to understand that “good” institutions with “wrong” macroeconomic framework is to create a situation where credit can easily lead to serious problems as well as a situation characterized by “wrong” institutions and “good” macroeconomic framework. This is emphasizing both the central role assumed by credit in a modern capitalist economy but also role changes with evolutions of the economy.

Actually the place of credit strongly changed not just between pre-capitalist and capitalist economies but also with different regimes of the capitalist economy. We will first describe the general role of credit (and debt) in a capitalist economy and will show that there is no difference between what is called a “modern” capitalist economy and a credit-based economy. We are then to tell the story of two regimes, the one actually dominant in the 1960’s by looking at financial aspects of French development and the one who led us into the 2008 crisis. We will then make some inference for Russia of the comparison between these two regimes.

 1. What is a « credit economy » ?

Credit is assumed to be both the best and the worst of all economic things. Actually bank credits have become an integral part of modern economies since the end of XIXth century and finance had known tremendous developments by the end of the XXth century. The question is no more would credit be necessary but how will it be regulated, in what economic context, and by whom.


It is to be understood that there is a huge difference between a situation where an individual makes a credit to another one and a situation where big enterprises, be they banks, financial institutions, or even large industrial corporations, are systematically making credits either to households (consumption or investment credits) or to other enterprises to fund economic production. The first situation describes what could be aptly named a pre-capitalist economy where dominates the figure of the individual loaner. The second one is a true capitalist economy where the dominant figure is bank and the banker.

Large-scale credit development induced major a transformation in money and in production. As money is transformed into commodities to be transformed under the production process the production entrepreneur is taking a risk that the final product could not be sold at a price recouping the actualized amount of money he had initially spent. But this risk was restricted to the entrepreneur. When he borrows to a bank the money needed for launching the production process and when the bank could to be refunded (be it on a “market” or by the Central Bank) this changes the process. Entrepreneur becomes then more and more what Hyman Minsky aptly called a “money manager”[2]. Entrepreneur risk is then disseminated along the whole chain of credit institutions but in the same time the failure of many entrepreneurs in their own productive challenge could be cumulative and strike back hard financial institutions. Hence the need of first “good” credit institution but also of “good” macroeconomic conditions. Note here that a similar situation developed for consumption. The share of credit-funded consumption dramatically increased since the 1950’s. This enabled production of consumption goods to reach new heights and gave birth to huge productivity gains through massive economy of scale. In turn, this lowered the relative prices of consumption goods making them more affordable and opened doors of the consumption society. But this process also raised the issue of household solvability and implied the dynamic stabilization of household incomes. Credit-money became the norm and lost progressively its previous links with commodities like Silver or Gold. Management of money became one of most necessary function of Central Banks all over the world.


The central issue of a capitalist economy or a credit-money economy is how would credits be circulating. To the contrary of conventional belief the Central Bank doesn’t create money. Forget about fantasies like Friedman’s helicopter pouring money over US plains[3]. Credit-money is always created in a private way and mostly by commercial banks[4]. What does a Central Bank is to validate private credits, allowing them to circulate not just between the two people who are engaged by the given credit (or contract), or between the commercial bank and the debtor, but in the economy as a whole. The Central Bank transforms private debts into things who can circulate freely and become “legal tenders” to settle other debts. The Central Bank do this either by buying back some credits (or some debts) or by the refunding rate it levies on commercial banks (the intervention rate). The lower this rate or/and the greater the volume of buy back and the more private credits (hence private debt) are validated and can circulate into the economy without restrictions. But the story doesn’t stop here. Banks have been eager to free themselves of the Central Bank power to validate or not validate credits. This initiated the development of structured finance. In structured finance some debts are resold and mixed with other debts, hence creating a general (but highly imperfect) market of debts. Securitization is basically a process where assets, be they receivables or financial instruments, are offered as collateral for third party investment[5]. Securitization is part of structured finance, which allows for the transformation of debts into investment instruments. Securitization, in a way, disseminates risks to make it more easily sustainable. The main issue here being the ability of a derivative buyer to trace out what risk he actually bought. However, financial innovation transformed structured finance into a highly complex game, where derivatives of derivatives were commonly issued. The development of SPVs increased these problems. Special Purpose Vehicles are financial institutions short of banks and created to handle for a given bank part of the derivative trade the bank could not (because of regulations) or would not handle. They have progressively supplanted banks in the MBS trade, but banks and insurance companies have been eager to buy securities with an higher than average rate of return even if it was becoming more and more difficult to assess what was the precise composition of collaterals.

If all credits given in an economy would give birth to a production (either directly when they fund investment or indirectly when they fund consumption) of a value equal to the value of the credit given (to which would be added accumulated interest) there would be no monetary inflation[6]. The issue of monetary inflation arises from delinquent credits. Then money has no “real” counterpart and by comparison to the production of goods and services we have an “excess” of money. If Central Bank policy is to validate every credit (and debt), and then by necessity some credits which are not to be repaid or to give birth to a volume of production equivalent, that will happen. But if Central Bank doesn’t validate enough credits, then production is to be lower than it would have been otherwise, as some economic operations could not be funded. What’s matter then is the dynamic nature of credit. A credit is ever an advance either on production or on savings. If we have a buoyant economy where we have a constant flow of production and income we have no reason (but for some malignant frauds or miscalculation from creditors) to expect a misbalance between the present credit and the future income. But, this implies (i) no economic crisis and (ii) that income distribution is at least to stay constant.

We have then a trade-off between growth and inflation but not in the common understanding of such a dilemma. Actually we have, for a given economy, a given rate of inflation and all attempts to go significantly under this rate (which could be called structural or natural) entails significant penalties in short and long term development[7]. We have then to forget about the fantasy of a so-called “neutral” money or monetary policy[8] and also about the so-called “inflation targeting”[9]. Actually we have something that could be called a “natural” or “structural” rate of inflation for each economy, which depends of given factors like the need to replace the capital stock, the amount of investment and others. This reasoning implies that sometime the actual inflation rate could be too low and idea looked as heresy by some people in Frankfurt[10].

The growth rate one could obtain if the Central Bank (or monetary authorities) would have adopted a perfect policy for stimulating growth is called the potential growth rate of an economy. The comparison between this potential growth rate and the actual one (the “output gap”) determines the Central Bank policy, either restrictive or lax. Note however that the potential growth rate depends too of a lot of factors including consumption demand and of course investments. There is no thing like a ceteris paribus condition in actual economies.

When a Central Bank commits itself to a policy considered to be “lax” for some span of time it could send a signal to increase the level (and the rate) of investment moving then upward the potential growth. By the way, actors are not reacting along “perfect” lines as supposed by the rational expectations theory. They are sensible to context-induced reactions as described by applied psychology researches[11]. We have too “strategic relations” between some sectors, implying that production of some sectors (and the price of goods produced) highly dependent of production (and prices) of other sectors[12].

In the end the potential growth of an economy is not fixed and would be determined by a lot of factors, including the indirect effect of monetary policy, which could set a positive or negative context. But the gap between the potential and the actual growth is determined by the monetary policy implemented by the Central Bank. This is why credit policy is central in modern capitalist economies or credit-money economies. But, this is supposing a network of intermediary institutions, banks and financial institutions, which first would give credits to actors of the “real” economy and others institutions stabilizing the economic path and distribution of income[13]. Such a situation happened in capitalist countries and one good example was France in the 60’ and 70’.


  1. 2. The post-war French system.


France has experienced a very high growth from 1944 to 1990, and especially from 1960 to 1990 when the post-war reconstruction has been completed. If the initial reconstruction has created the context of this growth, development assumed after 1955 a new course[14]. French growth was more or less on par with Japan and was emulated in Europe only by Italy. This rate of growth (figure 1), nearly tripling country’s wealth in 30 years was linked to a multiplicity of factors among them of course the credit system stands as a peculiar one. The fact that reconstruction was more or less completed by the late 1950’s is important to well understand the actual situation.

Public investment contribution to GDP growth was, on the average, of 3,5% and final consumption from public administrations 19,5%, which puts the total contribution of the public sector to 23% of the yearly average growth of 4,1%. By comparison the GDP growth contribution of households consumption was 54,2% and contribution of private investment 13,3%. Then the two most important private activities have contributed to 67,5% of the growth rate and public ones by only 23% (table 1). It was an important change with previous years (1945-1959) and clearly established that the French economy has returned to a more normal kind of activities.

Figure 1


Source: INSEE, Comptes Nationaux, base 2000, Paris, 2007, EUROSTAT and NBER.

Table 1

Growth contributing factors (in GDP growth point).

Mean values for yearly growth




Households final consumption

2,2 %

3,0 %

Public sector final consumption

0,8 %

0,9 %

Investment, of which

1,0 %

1,7 %

   Non-Financial enterprises

0,5 %

0,9 %

   Financial enterprises

0,0 %

0,0 %

   Public sector

0,1 %

0,2 %


0,3 %

0,5 %

   Individual entrepreneurs

0,0 %

0,0 %

Balance of imports and exports

0,0 %

0,0 %


1,2 %

1,4 %


-1,2 %

-1,5 %


0,1 %

0,2 %

Total GDP growth

4,1 %

5,8 %

Source: INSEE, Comptes Nationaux, base 2000, Paris, 2007.

In fact, the French population discovered at the same moment both mass-consumption and consumption credit. This had tremendous consequences on the actual growth rate. This explains why growth has been such in France and why France has overtaken countries like Germany, United Kingdom and USA during these years.

There is then an unsung but quite real “French Miracle” (and also an Italian too) to be opposed to the well-known but over-rated “German Miracle”. What were then credit institutions allowing such a “miracle”?

Actually, France, like Italy, had known quite a long time of what is called now “repressed finance”[15] whose most important points where (i) a reliance on the Central Bank to provide the necessary funding for the economy, (ii) a highly regulated banking sector and (iii) highly segmented financial markets.

By then, and till the early 80’s, the Central Bank (Banque de France) was no more than a kind of Ministry of Finances department. It provided, directly or indirectly through swap mechanisms with commercial banks, the liquidity needed to economic development. Commercial banks where highly regulated and for most of them State-owned (but managed in an independent way). They were under the mandatory regulation to buy State bonds (in limits called then “Floor of public bonds”) and they had regular relations with the Central Bank, which was closely monitoring both quantitative and qualitative amount of credit. Some specific institutions were then operated to manage and subsidize credit for given activities (like Credit National for mortgage equivalent credits). The whole system was under the close supervision of the National Credit Council (Conseil National du Crédit) who actually managed banking regulations.


There was then a strict separation between “deposit banks” and “investment banks” (equivalent to the Glass-Steagal Act implemented by late 30’s in the USA) something made mandatory by a law of 1945. Till 1969 the French banking system was three tiered with deposits banks (belonging to the competitive sector but mostly State-owned), investment banks (mostly private) and specialized institutions for medium to long term credit (here again State owned). In some sectors (agriculture and residential construction) loans were State subsidized[16], and this system of subsidization (Crédits Bonifiés) was instrumental for agricultural development and modernization. Actually the cooperative Bank (Credit Agricole) channelling these subsidized loans had a near-monopoly situation. The Central Bank refunded commercial banks on the discount market with a priority given to some specific debt categories. This, cumulated with credit subsidization played a very important role to finance some activities.

There were some financial markets in operation by this time but they were submitted to a double segmentation. First we had a clear separation between France and foreign countries (and remember we were living under the Breton Woods fixed change rates system till 1973) and to some extent what could be called “financial protectionism”.  Second, we had also a clear separation between different compartments of the financial market[17]. As a result interest rates could be directly managed by Central Bank and Ministry of Finances[18], and were frequently very low in actual terms. The development of consumption credit was fast in the 60’s and was supported by wages growing more or less at the same rate than labour productivity. This was, till 1978, one of the most interesting characteristics of the French economy.

France experienced a fast growing labour productivity, something resulting from the 1945-1959 reconstruction and rebuilding of infrastructures but also of a thorough modernization (itself linked to a high rate of investment) and of expansion of the volume of industrial goods production giving birth to a massive scale-effect. The fact that average wages were growing more or less at the same rate than productivity was the insurance that the level of forthcoming demand would match the level of forthcoming production. Of course this adjustment applied only long period of time. Consumption credit then played a very important role enabling households to spend with a high degree of solvability ensured by growing wages. It can also be seen on figure 2 that GDP was growing faster than labour productivity, something resulting from a larger amount of work coming from (i) an increase in the women rate of activity and (ii) immigration (especially after 1965).

Figure 2


Source: INSEE, Comptes Nationaux, base 2000, Paris, 2007

The fact that on a growing number of households we had now two wages and just not one gave them a greater degree of solvability. It has to be said also that unemployment reached an all-time low, with less than 150 000 unemployed people (on a population of then 50 million). Actually unemployment was of short duration as they were an abundant supply of working places. This too gave to households a greater degree of solvability.

The wages movement, which after 1968 became regulated at the national or the industrial branch level was instrumental in assuring household solvability. Income distribution became also more equal (figure 3) a factor largely contributing to the general solvability. The system of economic institutions dominant in France[19] produced then conditions for a fast growth and gave credit its effectiveness.

Figure 3


Source: OECD Data base, 2008.

It was not for nothing that these times were called “the Glorious Thirty”. Inflation was higher than in Germany, but as explained before this corresponded to a higher structural inflation induced by the rapid change in the French economic structure and the necessity to fund public and private investments. The inflation difference was adjusted several times by devaluation of the currency[20]. However, after the first Oil Shock (1973) and some institutional changes inspired by a more liberal-minded policy the wages movement became disconnected with productivity and situation evolved in a bad way with finance becoming more and more unregulated. Actually France, and most of Western countries entered a process of change, which in turn induced a dramatic change for credit and led to the 2007 “subprimes” crisis.

  1. 3The wrath of unchained finance.


The crisis initiated on the US mortgage-market when delinquencies and foreclosures on mortgaged loans began to multiply by winter 2006-2007, accelerating in 2008 with large bank crashes culminating in the collapse of Lehman Brothers. Soon, because of financial deregulation the crisis originated in the US economy contaminated others and went global.

Delinquency rates on subprime mortgage loans actually originated in 2005 and 2006 and have exceeded the highest recorded rates on any prior vintage. Mortgages originated in 2007 were performing even worse. During the third quarter of 2007 43% of foreclosures were on subprime ARM, 19% on prime ARM, 18% on prime fixed-rate, 12% on subprime fixed rate and 9% on mortgage loans with insurance protection from the Federal Housing Administration. Quite clearly, the Adjustable Rate Mortgage mechanism has been one of the major crisis triggers. The value of ARM contracts, which were reset for higher rates, was USD 400 Billions in 2007 and USD 500 Billions in 2008, of which 250 Billions only for subprime contracts[21]. Subprime contracts have been on the forefront, but it would be a mistake to think that delinquencies are concentrated only in this compartment. This trend was perceptible also in higher quality alt-A and nonagency sectors[22]. This situation has been the result of a lending policy inducing households in taking too much debt through the development of “special compartment” mortgages, Subprime and alt-A[23]. These compartments, which usually played only marginal a role in the mortgage industry (5% of all mortgage-based loans), took an increased relevance after 2001 and reached 20% of all mortgage-based loans in 2006[24].

Between 2001 and 2006 it was not just lower incomes households, which were enrolled in this system but also wealthier middle-class ones. This led to a strong acceleration of household indebtedness as shown in figure 4. Actually till the end of 1970’s the global household debt was around 40% of GDP and mortgage debt around 30%, implying that mortgages were making around 75% of all household debts. By 2006 the debt to GDP ratio for household went at 100% with mortgage around 80% of GDP. Lower incomes households used mortgage refinancing to raise money for other purposes (mostly as a consumption credit or to pay University fees).

This gave birth to a credit bubble leading then to a huge rise in real-estate prices in a self-reinforcing expectations mechanism, which looked at first to validate credit expectations. During its acceleration phase this had cumulative effect making even easier to get mortgaged loans (and then leading to even higher real-estate prices) and inducing middle-class households into true speculative behaviour[25].

This is explaining why subprimes have played such a role. In the US mortgage industry, “special compartments” were usually playing a minor and marginal role. What changed after 1998, and particularly after 2001 was the fast increase in subprime and alt-A shares in mortgages originations.

Figure 4


Source: US bureau of the Census.

This was, first and above all, a response to a change in the social situation: the disappearance of the middle-class and the resurgence of a true Veblenian world[26] dominated by the Leisure Class[27]. The change began actually with Reagan’s conservative revolution of the early 80’s but then went on unabated. The conservative fiscal and income policy implemented by the Bush administration dramatically curtailed “middle-class” income growth to the benefit of the wealthiest part of the US population.

In 1970 the wealthiest 1% of the US population earned 8% of the national income, pretty close of actual figures in France or Western Europe. In 2007 the share for the same 1% has reached 17,8% and the 0.1% wealthiest earned 7% of the national income when the equivalent figure was a mere 2% in France and Germany (figure 5). This was a clear signal that US economy growth had been mostly captured by the upper-wealthiest part of the population (in France and Germany where growth had been much lower, the median per-capita income increased by 2% in the same period).  Income inequality as shown in figure 5 has reached in the USA the level reached just before the 1929 Crash and the “Big Depression”[28].

Figure 5


Source: Piketty, T. and Saez J.,

Because of the relative impoverishment of the US middle class (and of the working class), mortgage credits were by then instrumental to sustain the internal demand and the US economic growth from 2001 to 2007. It has been computed that money available from mortgage-loans, what is called in US financial language Home Equity Extraction or the fact that with the rise in prices of houses collateralized for mortgages banks were ready to lend ever more to households, became more and more important for the economy. In the same time, because of the bubble lower income household were more and more dragged into this system.

This explains why Subprime and alt “A” developed so thick and so fast from 2000 on. But as a result the total household outstanding debt jumped to 94% of US GDP during the same period of time, a clear departure from the long-term trend. The link between George “W” Bush “compassionate conservatism” and household indebtedness is here unmistakable. The median income stagnated as the average income increased[29], the proof that the growth was mostly concentrated to very high incomes.

Credit became then a proxy for a more balanced income policy and was used to fund households whose solvability became more and more perilous (figure 6). But this became too an imperative for growth. The Home Equity Extraction mechanism, assumed a more and more important part both in total household income and in aggregate growth. It has been computed that this mechanism only was responsible for 66% to 75% of US growth between 2001 and 2007.

Figure 6


 Sources: National Data and JEC.

 Quite interestingly, this trend has been mimicked in Spain and Great-Britain, two countries presented by conservative economics advocate as European success stories before the crisis. The household debt reached by 2007 124% of GDP in Spain and 130% in GB. Such levels were unsustainable. The change actually originated not with the George “W” Bush’s administration but slightly earlier, around the 1998 crisis. Conservative policies implemented since 2001 have however considerably aggravated the situation. They came on the top of an economic regime change, which took place between the notorious LTCM crash (1998) and the explosion of the Internet bubble in 2000. Retrospectively years described as ones of the US economy wake-up, which have played a significant role in reshaping US power and enhancing the US economic “model” status in Europe, were ones when this “model” actually derailed.

pitalism”, was unsustainable[30]. The use of adjustable rate in contracts increased too (see table 2). Mortgage contracts qualifying as Subprime ARM represented only 6.8% of loans outstanding. Nevertheless they represented 43% of foreclosures started during 2007 third quarter. The solvency ratio was pretty low and went down ever more[31]. Till real-estate prices were steadily increasing the deterioration in underwriting standards could be to some extent ignored. However, once the market levelled and began to turn down this could not be ignored anymore as put in a 2007 Joint Economic Committee report[32].

Table 2

Characteristics of Subprime Home-Purchase Loans


Share of ARM contracts

Debt Payments-to-Income Ratio

(Solvency Ratio)

Average Loan-to-Value Ratio

(Leverage Ratio)

























Source: JEC, The Subprime lending crisis – The economic impact on Wealth, Property Values and Tax Revenues, and How We Got There, US Congress, Joint Economic Committee, Report and Recommendations by the Majority Staff of the Joint Economic Committee, US-GPO, October 2007 table 10, p.21.


One important reason why “special compartments” developed so fast was the noticeable reduction in the risk-premium borrowers had to pay. In 2001 the difference between a Subprime contract and one done in a “normal” compartment was 280 basis points (or 2.80%). The premium steadily decreased, only to reach 130 basis points (or 1,30%) by early 2007. The ability of Subprime lenders to re-sell the risk by issuing mortgage-backed securities, the very process of securitization, enabled them to do that. In addition, Subprime lenders introduced the adjustable-rate mechanism, which for the borrower had the effect of delaying the impact of monthly repayments. Interest rates during the first year were kept artificially low to induce new borrowers to enter these contracts[33].

With adjustable rates the interest rate burden would begin to be felt only 20 to 27 months after the mortgage loan had been issued. The combination of highly leveraged mortgages and high indebtedness, in a situation where middle-class household income was stagnant was a recipe for disaster. The conservative income policy combined its effect with the neo-liberal deregulation of the banking and credit sector. The merging between credit and market activities in the bank industry during the 80’s was also a deep institutional change, consequences of which had been underestimated.

Weakening financial institutions through deregulations, as bad and foolish it was, would probably have had a lesser impact would income distribution has been less unequal. Institutional changes had been already on the forefront of the US Saving & Loans crisis during late 80’s and early 90’s. But things then went for the worse.

  1. 4.    The crisis goes global.


The relevance of “special compartment” mortgages increased quickly also because they were backed by a powerful string of financial derivatives, mostly CDOs and CLOs[34], enabling then financial institutions to apparently spread the risk and then diminish its impact on themselves. The “collateralization” process, then disseminated the current crisis as about 75% of recent subprime loans have been securitized[35]. Securitization was at the very heart of the current crisis, which can be seen as a crisis of the deregulated finance.

Hence if CDOs re-securitize some MBS, we had CDO-squared, which are financial products re-packaging other CDOs. Asset pools became too more and more heterogeneous, combining hugely different asset-types with hugely different risks[36]. In this process any transparency on the qualitative content of such products is quickly lost and financial institutions lived, till the crisis, in a false feeling of safety.

Structured finance has began to develop by the 1970’s, but till the late 90’s was relatively limited in the mortgage industry. However, Mortgage-Backed Securities (MBS) developed very fast from 1998 onwards and were in the forefront of “risky” credit expansion[37]. After reaching 1,500 billions USD in 2002, they reached 8,500 billions in 2004 and 45,500 billions early 2007[38]. The process of issuing “derivatives of derivatives” (the notorious CDO-squared) destroyed completely accountability and transparency of the process. The combination of a fast developing MBS trade and of SPV infected most of Western and Asian banks. The US crisis spread all around the world through a bank crisis.

It developed not just as a mortgage crisis but a consumption credit crisis as well. Early February 2008 it has been announced that credit card companies were to write-off 5.4% of their prime card balances against 4.3% in January 2007[39]. More than 7.1% of loans related to personal vehicles and cars were in trouble against 6% by January 2007 and personal bankruptcy filings, which had significantly decreased after the 2005 Federal law making much harder for households to wipe out their debts, are again increasing significantly. Even more disturbing was the fact auction-rate securities suffered a major blow on February 13th, 2008 when closed-end funds proved had strong difficulties with their usual weekly issuing session and 80% of auctions failed[40]. The auction-rate securities market is a low-profile but important segment of US financial markets. This was another strong signal that a serious Credit Crunch was developing in the US economy.

Facing the prospect of a major bank crisis inducing a global Systemic Risk the FED acted strongly and rightly, moving interest rates from 4.25% to 3.0% in 10 days in January 2008. This saved for a time most US banks and insurance companies but did not solve the problem as the Lehman Brother collapse of September 2008 would graphically show. The FED acted again massively on March 11th, announcing what amounted to a massive bail out of the US bank sector and received the European ECB support. However, markets cheered for less than 2 days. By March 13th, with Carlyle Capital going bankrupt, markets fell again[41]. On March 14t, J.P. Morgan, with FED help , bailed out Bear Stearns (a mortgage broker). Bear Stearns was bought during the week-end (March 15th-16th ) by J.P. Morgan, using a $30 billions FED lending[42]. This quite desperate move had to be done to prevent a major bank crash on Monday March 17th. Carlyle Capital in the meantime had filed for liquidation[43]. Carlyle Capital had used a highly leveraged strategy (32 to 1) to fund a $21.7 billion portfolio of mortgage-backed securities issued by Fannie Mae and Freddie Mac, which were supposed to be much safer than Subprime and alt-“A”. However, the value of these securities has fallen during the credit crisis as buyers for any kind of mortgage securities have pulled out of the market. Losses suffered by UBS and Credit Suisse were also linked part to alt-A and part to “normal” commercial real estate credits.

Since April 2007 however several US banks had defaulted and one medium-sized British bank went bankrupt (Northern Rock). The British government had then no option but to nationalize the bank to avoid a major banking disaster and a 1929-type bank run. Then, we had the collapse of Lehman Brothers and the global meltdown leading to a major financial AND economic crisis. Actually the FED was overtaken by events. One problem we could now identify was that US monetary authorities kept trying to implement the financial equivalent of what could be described in military language as linear defence. This could only fail.

In the meantime, the Credit Crunch began to be felt in Europe by January 2008 and is clearly worsening. In Great Britain the inter-bank offered rate (LIBOR) rose to 6% by March 28th when the Central bank was lowering its key rate. The situation was also becoming tense in Germany and Spain, two countries where the banking sector was heavily exposed to the mortgage risk. Mortgage based securities have increased in Spain from 25 to 200 billions Euro between 2001 and 2006 and topped at 247 billions by 2007 third quarter. Spanish households solvency plummeted fast. The average weight of yearly loan payments (prime and capital) jumped to 45% of average yearly income early 2007 and total Spanish household debt has reached 124% of GDP by fall 2007[44].

This crisis then reached first Asia (where Japan was hit hard) and emerging economies (among them Russia[45]) and then the EU. The Euro-Zone was already suffering of low growth because of constrained household demand and an uncompetitive situation induced by a too strong Euro since the beginning of the European Monetary Union. This exacerbated tensions in a zone where there was (and still is) no convergence of real sectors[46]. The combination of a lack of a “Federal” budget at the Euro-Zone level and an ECB policy much too geared to fighting inflation was a recipe for disaster when facing so strong a shock[47], and this was what we have seen from late 2009 up to now.

Spain and Ireland were of course the weakest link in Europe for 2008 but were not alone. Greece, with a very high sovereign debt, and Italy, with a very low growth since the beginning of the Euro were also catastrophe in the being. The “Euro-Crisis” was to some extent the consequence of the “Subprime” crisis[48].

What made the quick global contamination possible was of course the large-scale deregulation implemented since the late 1980’s[49]. Actually financial deregulation was supported by false expectations (and an equally false theory[50]) that it would boost investment. This was clearly connected to market fundamentalism spreading at the theoretical level since the 1970s[51]. Actually, under pressure from the US Treasury, the IMF management proposed by late 1990’s changing the institution’s rules to promote capital account liberalisation. The drive was abandoned after the Asian financial crisis stiffened opposition among emerging market countries.

In 1997, Malaysia imposed controls on capital outflows, a decision that the fund opposed at the time and which provoked a heated debate among economist. However, subsequently one IMF managing director, Horst Köhler, said it was the right decision at the right time. Globally deregulated capital flows have proven to be highly pro-cyclical which means that they would aggravate a crisis[52]. By the way finance global deregulation did not increase investment as it was forecasted giving birth to serious disillusioning about capital free flowing[53]. We are now seeing some move back to sanity[54] but by 2008 the dice has been cast and the contamination process was of a massive scale. The US mortgage crisis turned then into a major global one and shock waves reverberated all along the world.

One lesson clearly learnt from the crisis has however been that financial globalization went too far by a wide margin[55]. Even the IMF has understood that[56]. It is however still to be proven that the IMF and national government will have the nerves and power to force some new regulation on to global banks[57].

  1. 5. Was credit responsible for the crisis?


Credit has been the prime mover of the current crisis. But credit has been too the main tool of the dramatic growth experienced by France and Italy in the 60’s and the 70’s. It was not however the same “credit”. When credit is used as a development tool first under strictly regulated conditions (and remember the world as it was in 1970) and second under long-term growing production and incomes (with a well balanced distribution of income) it has highly beneficial consequences. But, when the credit mechanism is a proxy for incomes in a stagnant economy, when growth is laying on the very dangerous Home Equity Extraction it could become a very dangerous thing.

Actually credit can’t be separated from other institutions devoted to the stabilization of a credit-based economy and particularly from finance and income regulations[58]. These institutions define a specific capitalist regime. Actually the “repressed finance” regime dominating in France (and elsewhere) by the 1960’s has still today a lot to teach us. A comparison between the specific institutional situation in France (in the 1960’s and 1970’s) and the one in current USA is then instructive. It is fairly obvious that huge differences are separating the two regimes (table 3).

 Table 3

Financial institutions context of the two regimes:

France (1960-1970) and post-1990 USA






(Repressed finance regime)





(Finance dominated capitalism)


Bank specialization



Market segmentation



Financial protectionism[59] (or relative isolation)




Level of financial regulation

High and not restricted to prudential regulation.


(restricted to prudential regulation)

Mains source of monetary policy.

Ministry of Finances

Central Bank

Status of the Central Bank.

Linked to the Ministry of Finances

Largely “independent”

Level of State intervention


(Subsidization of loans, guarantee of credit)


(but increasing with the crisis)

International context

“Bretton Woods” system of fixed change rates.

Largely deregulated global system with flexible change rates

Clearly, the international context is completely different. By the 1960’s we were under the Bretton Wood regime. It exploded in 1973 and led us to a system dominated by flexible change rates. But it is also to be understood that some countries have been able to protect themselves from this new context, mostly by introducing some kind of capital flows restriction. So, the validity of the global context is not as pre-eminent as one could think.  Institutions defining a capitalist regime are the real context for macroeconomic evolutions. But these evolutions have also their specific relevance as they provide the grounding for a greater or a lesser agent solvency. Here again the institutional context can’t be separated from the macroeconomic one.

As the world went out from repressed finance it entered into a time of small growth and greater social inequality and this too is to be compared.

Table 4

Macroeconomic trends and characteristics of the two regimes:

France (1960-1970) and post-1990 USA





(Repressed finance regime)





(Finance dominated capitalism)


Income repartition Low inequality High inequality
Link between wages increase and labour productivity gains Strong Weak
Household indebtedness (computed as percent of GDP) Low (around 20% of GDP) High (from over 70% to 130%)
Ratio of household financial payments to household incomes (household solvency) Low (around 15% to 20%) High (over 50%)
Unemployment level (in percent of active population) Low (between 2% to 4%) High (over 7%)
Economic activity predictability High, with reduced or even no business cycle Low with a succession of financial crises.
Savings High (over 20% of GDP) Low
Nominal interest rates High Low
Actual interest rates Low Medium to high

Of course these institutional changes are the subject of intense conflicts between categories of the population. Some regimes are characterized by a higher or a lower inflation as inflation can be seen as a kind of redistributive policy. Usually population linked to financial activities has a strong interest to keep inflation as low as possible to protect both their savings and income but with the ongoing result that the output gap is much higher than under other regimes.

With the development of total financial deregulation over a lot of countries emerged a specific regime characterized by low inflation, low growth and high incomes inequalities. Under this regime credit has been used and misused to soften otherwise unbearable social tensions. This led to a huge accumulation of debt in an economy becoming day after day more and more insolvent and ultimately led to a large credit crisis.

Credit could then give birth to a bubble if and when it triggers income growth expectations not supported by other economic factors. Credit would then give an illusion of well-being, an illusion not supported by real factors but carrying a great weight on agent psychology. This is linked to the pre-crisis development of what Robert Shiller calls a “gambling mentality”[60], something happening when financial speculation is driving high incomes expectations[61]. Robert Shiller then adds:

Gambling suppresses natural inhibitions against taking risks, and some of the gambling contracts, in particular lotteries, superficially resemble financial markets…[62].

The suppression of risk inhibition and the fact that the first losses don’t play the role of a warning light but precipitate gamblers into more risky undertaking is a common characteristic both of gambling and financial bubbles. But, would economic institution favourable to a fast growth regime become prevalent credit could still be used to foster growth as in the 60’s and the 70’s in France (but also in Italy and in several European countries). The crucial point here is the dynamic stability and predictability of household non-financial incomes.

  1. 6. Consequences for Russia

 It is an important point to figure out for emerging economies and Russia in particular. Dynamic stability here means that the household real income rate of growth is to be stable and quite predictable. In turn that implies of course low unemployment and a good social insurance system, a strong network of social agreements at country or industrial branches level, a greater degree of income equality[63], but also a strong network of public services (education, health), which would protect household from the sudden revelation of huge hidden costs. It implies too a strong correlation between labour productivity gains and wages increase and non-financial household incomes would have a major share in total household incomes. The level of household indebtedness is to be kept low by comparison with long-term income. Under these institutional framework credit would and should be used on a much more larger basis than it is today.

However for such a policy to be implemented in Russia it would first need the Russian Central Bank to break with its ill-advised inflation-targeting policy[64]. Such a policy has never been proved right[65] but was particularly wrong when it comes to Russia[66]. The impact on employment and growth seems to be much more certain than the impact on inflation[67]. This is a significant problem in Russia. Because the country is rebuilding its industry, it has to generate a constant and large flow of investment that is far above what is achieved in developed countries (and far above what it is achieving right now). The potential output growth corresponding to this situation should be fairly high, if only to assure that outmoded, Soviet-era infrastructure is to be replaced. We know that “techno-disaster” are occurring because of the very age of the infrastructure.

In such a situation, the ERRI (or equilibrium real rate of interest) would be low. Post-Keynesian authors have envisioned such situation, albeit in a different context, and they assert that the nominal interest rate target for the Central Bank should be near zero[68]. There is even a case to be made for “negative” interest rates or nominal interest rates lower than the inflation rate (as they were at some point in 1960’s France). The responsibility of the Central Bank in the 2008-2009 credit crunch has been one of the main features that exacerbated the crisis. The Central Bank raised to a considerable extent its refinancing rate to defend the ruble exchange rate when, at the same time, the FED or the Bank of England lowered theirs (figure 7).

Figure 7


Source: Central Bank of the Russian Federation.

This episode if of short duration had deep consequences for the Russian economy. High interest rates were of dubious value against capital flight. A return to capital controls would have been much more effective. This is just one example of consequences not having good financial institutions for Russia. A system of capital controls could have made the management of the exchange rate much easier without resorting to this spectacular refinancing rate hike.

The end result was that CBR policy damaged to a considerable extent the whole process of credit and induced a considerable drop in durable goods consumption just at the same time than Russia was facing a strong drop in its exports due to the drop in consumption in other countries. The external crisis effect was cumulated with an internal one and the Russian government had then to directly support enterprises . The refinancing rate was then lowered and, by mid-2009, has gone down significantly under its pre-crisis level. But so was the inflation rate. Actual interest rates (i.e. interest rates minus the inflation rate) were still pretty high. This is major a difference between Russia and other countries where Central Banks are still pushing for very low refinancing rates, under the inflation (as in the USA, United Kingdom or even in the Euro-zone). There is nothing comparable in Russia (figure 8). Consequences of the policy divergence are multiples. Not only credit is fat more expensive in Russia than elsewhere (pushing then economic agents to borrow to foreign banks) but the exchange rate is probably overvalued (or more precisely not as undervalued as for the USD or the British Pound).

 Figure 8


Source: as figure 7.

This is not to deny that CBR’s task is a very complex one. But, the definition of its targets should not be left to the CBR alone as this definition could have extremely powerful impacts on Russia’s economic development and the stability of the whole economic system. The policy implemented since 2010 has had a deep impact on interest rates and the whole credit. Actual interest rates on loans have been very high and could even be described as “punitive” (figure 9). This is something to be seen not just on Household loans but also on non-financial institution ones. As a result both durable goods consumption and investment are constrained by the monetary policy.

Figure 9


Source: Central Bank of the Russian Federation, as figure 7.

It is then obvious that the monetary policy is a major factor constraining Russia’s growth.  But it is also to be understood that the lack of economic institutions able to ensure income dynamic stability for the majority of the population is also constraining credit and monetary policy. One good example can be given by evolutions on the mortgage market (figure 10). With the crisis outburst the unemployment rate increased. As unemployment benefits were less generous in Russia than in some other countries the global household income was impacted. This led to greater difficulties for some households to repay their debts and the amount of overdue debt repayments sharply increased (but hopefully not in the same proportion than in Spain, Great-Britain or in the USA).

The global amount of mortgage loans slightly fell as banks, pushed by the Central Bank policy, overreacted and reduced sharply their exposure to the default risk. This had adverse consequences for the house-building sector, and in turn for the rest of industry as constructions were using a lot of semi-processed goods (steel, cement…). The slack had also consequences for the market of some capital goods (truck and crane). Would unemployment benefits had been more generous, and Russian workers more fully protected, the internal consumption could have counteracted the fall of exports products and the crisis, especially in the metals industry would have been less severe.

This example is just one emphasizing the role of economic institutions in the global economic stabilization so important for the development of credit. Once banks are engaged in asset selling and in the downward spiral of a crisis the situation could easily got out of hand. To improve their situation banks are reducing the amount of loans and increasing interest rates (the more so when refinancing is becoming more expensive) but by doing that they increase economic difficulties all across the board and will be faced by a sharp increase in overdue debts and liabilities whose value is more and more in doubt. The financial crisis is pro-cyclical with the economic crisis.

Figure 10


Source: As figure 7.


The only way out from this situation is a sudden increase in government expenditures (which was done in Russia) but this would in turn highlight the issue of fiscal policy. Fiscal policy should be rehabilitated and monetary policy, at least the interest rate policy, should be consistent with this fiscal policy. Monetary creation as stated previously is not exogenous but endogenous, and this has some serious consequences on the monetary policy. Lessons should be learned from the recent past. It is of course always more pleasant to posture as a modernizer than to proceed to a global review of the government’s policy. But the truth is that the current stagnation (or more accurately slow growth) is not rooted in the backward nature of the Russian economy or in its commodity-exports orientation. In a paper published early this year Glazyev and Fetisov emphasized:

The policy of ‘excessive’ revenue sterilization actually meant the exchange of the state’s cheap long-term money for expensive short-term loans of foreign banks[69].

The main problem is not the lack of innovative development in the financial sector, but rather the choice of sound institutions adapted to Russia actual needs. By and large, a new monetary policy is needed in Russia. But it should be one that accompanies a genuine development policy. By and large, a new monetary policy is needed in Russia. But it should be one that would go with a genuine development policy, Russia has still to both devise “sound” financial institutions and to create economic institutions enabling the economic activity to be both predictable and growing. But it is clear to that accumulated delays on the first part are hindering the second part of the development strategy.

[1] Shiller R.J., Irrational Exuberance, Princeton University Press, Princeton and Oxford, 2005, 2 edition.

[2] Minsky H. P. , “The Financial-Instability Hypothesis: Capitalist Processes and the Behaviour of the Economy,” in Charles P. Kindleberger and Jean-Pierre Laffargue, eds., Financial Crises: Theory, History and Policy. Cambridge, UK: Cambridge University Press, 1982.

[3] Friedman, M., “The Optimum Quantity of Money,” in Milton Friedman, ed., The Optimum Quantity of Money and Other Essays. Chicago: Aldune, 1969.

[4] Tobin J., “Commercial Banks as creators of ‘Money’” in Dean Carson (Ed.), Banking and Monetary Studies, for the Comptroller of the Currency, U.S. Treasury, Richard D. Irwin, US-GPO, Washington, 1963

[5] Ashcraft A.B. and T. Schuermann, “Understanding the Securitization of Subprime Mortgage Credit”, FIC Working Paper n° 07-43, Wharton Financial Institutions Center, Philadelphia, Pa., 2007.

[6] But not necessarily no inflation at all as there could be different sources of inflation.

[7] Sapir J., “Kakim dolzhen byt’ uroven’ infljacii? (O znatchenii davnykh diskuccij dlja opredelenija segodnjachej strategii razvitija Rossii)” in Problemy Prognozirovanija, n°3/2006, pp. 11-22

[8] Hahn F., “Professor Friedman’s Views on Money”, in Economica, vol. 38, n°1/1971, pp. 61-80; Idem, “Monetarism and Economic Theory”, in Economica, vol. 47, n°1/1980, pp. 1-17Ball L. and D. Romer, “Real Rigidities and the Nonneutrality of Money” in Review of Economic Studies, 1990, vol. 57, n°1, pp. 183-203.

[9] Arestis P., and M. Sawyer, “A Critical Reconsideration of the Foundation of Monetary Policy in the New Consensus Macroeconomics Framework”, Cambridge Journal of Economics, Vol. 32, n° 5, 2008, pp. 761-779.

[10] Akerlof G.A., W.T. Dickens et G.L. Perry, “The Macroeconomics of Low Inflation” in Brookings Papers on Economic Activity, n°1/1996, pp. 1-59. Andersen T.M., “Can Inflation Be Too Low ?” in Kyklos, vol. 54/2001, Fasc.4, pp. 591-602.

[11] Sapir J., “ Ekonomika Informatsii : novaja paradigma i ee granitsy ” in Voprosy Ekonomiki, n°10/2005; Idem, “Novye podhody teorii individual’nyh predpotchenij i ee sledstvija” in Ekonomitcheskij Zhurnal, Vol. 9, n°3/2005, pp. 325-360.

[12] Mankyw G.N. and R. Reis, “Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve” in Quarterly Journal of Economics, vol. 117, n°4/2002, pp. 1295-1328; Mankyw G.N. and R. Reis, Sticky Information versus Sticky Prices :a Proposal to Replace the New Keynesian Phillips Curve, NBER Working paper, n° 8290, NBER Boston (Mass).

[13] Minsky, H. ‘The Financial-Instability Hypothesis: Capitalist processes and the behaviour of the economy’, in Kindleberger and Laffargue editors, Financial crises: theory, history, and policy , Cambridge University Press, New York and Cambridge, 1982.

[14] Bloch-Lainé F. and J. Bouvier, La France restaurée 1944-1954, Paris, Fayard, 1986.

[15] Guillaumont-Jeanneney S., Politique monétaire et croissance économique en France 1950-1966, Paris, Colin, 1969

[16] See  J. Bouvier et F. Caron in Braudel F. and E. Labrousse (eds.), Histoire économique et sociale de la France, PUF, 1982, book III, p. 1177 and ssq,

[17] This began to be changed after the 1966-1969 reform implemented by Michel Debré (then Minister of Finance) and his close adviser Jean-Yves Haberer.

[18] Guillaumont-Jeanneney S., « La politique monétaire française pendant la présidence du général de Gaulle », in De Gaulle en son siècle, Plon, La Documentation française, 1992, tome III, p. 74-93.

[19] About this time see Boyer R., and J. Mistral Accumulation, Inflation et Crises, PUF, Paris, 2è ed. 1983; also Mazier J., M. Basle and J-F Vidal, Quand les Crises Durent, Economica, Paris, 1984.

[20] It is to be remembered that by that time all countries were under fixed change rates.

[22] IMF Global Financial Stability Report, April 2008, Washington DC, p. 5.

[23] Subprime are mortgages where the borrower debt/income ratio is over 55% or where the loan/house value ratio is over 85%. Alt-As are mortgages still qualifying for an “A-rating” by Moody’s or other rating firms but where references are incomplete. They are colloquially called “Liar’s mortgages” as there is a strong incentive for the borrower to hide his own financial situation. There is a third “special” compartment called “Jumbo” for mortgage loans over USD 455,000.

[25] People were entering the ARM process in the hope they could re-sell the house before the planned rate hike and still make a large profit. Households have been led to jump into the market not just for the need of a house but for the profit they hoped to make because of the prices upward movement.

[26] Hodgson G.M., “The Revival of Veblenian Institutional Economics”, Journal of Economic Issues, Vol. XLI, n°2, June 2007.

[27] Veblen, T., The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions. New York, Macmillan, 1999.

[28] T. Piketty and E. Saez, “Income Inequality in the United States”, Quarterly Journal of Economics, February 2003

[29] JEC, The Subprime lending crisis – The economic impact on Wealth, Property Values and Tax Revenues, and How We Got There, US Congress, Joint Economic Committee, Report and Recommendations by the Majority Staff of the Joint Economic Committee, US-GPO, October 2007

[30] Kindleberger Charles P., Manias, Panics and Crashes: A History of Financial Crisis, MacMillan, London, 2nd ed.

[31] It is to be remembered that Home-Purchase Loans are not the only kind of loan burdening US households. The total Payments-to-Income ratio could easily be over 55% with the addition of Credit Cards and Car-purchasing credits.

[32] US Congress, JEC, The Subprime lending crisis – The economic impact on Wealth, Property Values and Tax Revenues, and How We Got There, Report and Recommendations by the Majority Staff of the Joint Economic Committee, US-GPO, October 2007, p. 3.

[33] The adjustable-rate mortgage is a system where home owners have to pay just the interest (not

principal) during an initial period of one to two years. Another example is what is called a “payment option” loan, where the homeowner can pay a variable amount, but any interest not paid is added to the principal.

[34] Or respectively Collateralized Debt Obligations and Collateralized Loan Obligations.

[35] A. B. Ashcraft and T. Schuermann, “Understanding the Securitization of Subprime Mortgage Credit”, op.cit..

[36] Yu. Demyanyk and O. van Hemert, “Understanding the Subprime Mortgage Crisis”, Supervisory Policy Analysis Working paper, n° 2007-05, Federal bank of Reserve of St. Louis, St. Louis, February 2008.

[37] J.P. Morgan Corporate Quantitative Research, Credit Derivatives Handbook, J.P. Morgan, New York, December 2006, p. 6.

[38] J.P. Morgan Credit Derivatives and Quantitative Research, « Credit Derivative : A Primer », J.P. Morgan, New York, Janvier 2005.

[39] Moody’s

[40] Bank of America Securities, February 14th, 2008.

[41] “U.S. stock futures wilt on Carlyle fund, dollar woes”, by Steve Goldstein , MarketWatch, March 13th, 2008,

[42] “J.P. Morgan to buy Bear Stearns for $2 a share Fed to finance up to $30 bln of Bear’s less-liquid assets, mostly mortgages “ By Alistair Barr &Greg Morcroft , MarketWatch March 17, 2008

[43] “Carlyle Capital to file to liquidate the firm. Lenders take the last of the fund’s mortgage-backed securities”By Robert Daniel , MarketWatch  EDT March 17, 2008

[44] Data from the quarterly bulletin of the Spanish Central Bank.

[45] Sapir J., « Vozmozhnosti i Riski ‘Gavani Stabil’nosti’ »  in Rossija v Global’noj Politike, n°2/2008; Idem, « Rossija i mirovoj krizis » in Yekonomitcheskie i Sotsial’nye Peremeny, vol. 4, n°12, 2010, pp. 24-47.

[46] C. de Lucia “Où en est la convergence des economies dans la Zone Euro?” in Conjoncture, BNP-Paribas, Paris, March 2008. Conrad C. and M. Karanasos, “Dual Long Memory in Inflation Dynamics across Countries of the Euro Area and the Link between Inflation Uncertainty and Macroeconomic Performance”, in Studies in Nonlinear Dynamics & Econometrics, vol. 9, n°4, November 2005 (The Berkeley Electronic Press: )

[47] Sapir J., « La Crise de l’Euro : erreurs et impasses de l’Européisme » in Perspectives Républicaines, n°2, June 2006, pp. 69-84. Sapir, J., « From Financial Crisis to Turning Point. How the US ‘Subprime Crisis’ turned into a worldwide One and Will Change the World Economy » in Internationale Politik und Gesellschaft, n°1/2009, pp. 27-44.

[48] Sapir J., « Krizis evrozony i perspektivy evro », in Problemy Prognozirovanija, n° 3 (126), 2011, pp. 3-18.

[49] Gallegati, Mauro, Bruce Greenwald, Matteo G. Richiardi, and Joseph E. Stiglitz, “The Asymmetric Effect of Diffusion Processes: Risk Sharing and Contagion,” Global Economy Journal, 8, 3, 2008, available at

[50] On this point see Mishkin, F. S., The Next Great Globalization: How Disadvantaged Nations can Harness their Financial Systems to Get Rich , Princeton, New Jersey, Princeton University Press , 2006.

[51] Fama E.F., “Efficient Capital Markets: A Review of Theory and Empirical Work,” Journal of Finance, 25, 2:383-417, May 1970. Fama, Eugene F. and Kenneth R. French, “Permanent and Temporary Components of Stock Prices,” Journal of Political Economy, 96, 2:246-273, April 1988.

[52] Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. ” When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies” in Mark Gertler and Kenneth Rogoff, editors, NBER Macroeconomics Annual 2004, Volume 19, MIT Press, Cambridge (Mass.), 2005

[53] Rodrik D., and Arvind Subramanian, “Why Did Financial Globalization Disappoint?” in IMF Staff Papers, Volume 56, Number 1, 2009, pp. 112-138.

[54] Blanchard, O. and J.D. Ostry, “The Multilateral approach to capital controls” on Vox EU, December 11th, 2012, URL: . Beattie A., “IMF drops opposition to capital controls” in Financial Time, December 3rd, 2012, URL:

[55] Gallagher K.P., Griffith Jones S. and J.A. Ocampo (ed), Regulating Global Capital Flows for Long-Run Development, Pardee Center for the Study of the Longer Range Future, Boston University, 2012.

[56] Ostry J.D., A. R. Ghosh, K. Habermeier, M. Chamon, M. S. Qureshi, and D. B.S. Reinhardt, “Capital Inflows: The Role of Controls”, International Monetary Fund, Staff Position Note 10/04, February 19th 2010. IMF, The Liberalization and Management of Capital Flows: An Institutional View, IMF, Washington, 2012.

[57] Gallagher K.P. and J.A. Ocampo, “IMF’s New View on Capital Controls” in Economic & Political Weekly, vol. XLVIII, n°12, March 23rd, 2013, pp. 10-13.

[58] Minsky, H.P., Stabilizing an Unstable Economy. McGraw-Hill Professional, New York, 2008 (first edition 1986).

[59] Protectionism here means presence of barriers preventing the free flow of short and very-short term capital from one country to another. On the contamination risk raised by free-flooding capital flows, Stiglitz J.E., “Risk and Global Economy Architecture: Why Full Financial Integration May Be Undesirable” in American Economic Review, vol. 100, n°2, (May 2010), pp. 388-392.

[60] See: Grant J., The trouble with prosperity: a contrarian tale of boom, bust and speculation, John Wiley and Son, New York, 1996.

[61] Welte J.W. et alii, “Gambling participation in the United States – Result from a National Survey” in Journal of Gambling Studies, vol. 18, n°4, 2002, pp. 313-337.

[62] Shiller R.J., Irrational Exuberance, op.cit., p. 54.

[63] Stiglitz, J.E., The Price of Inequality: How Today’s Divided Society Endangers Our Future, W.W. Norton & Company, New York, 2012.

[64] Central Bank of the Russian Federation/Tsentral’nyy Bank Rossiyskoy Federatsii, Guidelines for the Single State Monetary Policy in 2009 and for 2010 and 2011, approved by the Bank of Russia Board of Directors, Moscow, October 17, 2008, available at .

[65] Galbraith, James K., “The Collapse of Monetarism and the Irrelevance of the New Monetary Consensus,” Policy Note 2008/1, Levy Economics Institute, Bard College, Annandale-on-Hudson, NY, May 2008

[66] Sapir J., « What Should Russian Monetary Policy Be » in Post-Soviet Affairs, Vol. 26, n° 4, Octobre-Décembre 2010, pp ; 342-372.

[67] Fontana, G., “The ‘Unemployment Bias’ of the New Consensus View of Macroeconomics,” in Philip Arestis and John McCombie, eds., Unemployment: Past and Present. London, UK: Palgrave Macmillan, 2009.

[68] Tymoigne, E., “Fisher’s Theory of Interest Rates and the Notion of ‘Real’: A Critique,” Working Paper No. 483, Levy Economics Institute, Bard College, Annandale-on-Hudson, NY, November 2006. Wray, L. Randall, “Lessons from the Subprime Meltdown,” Challenge, 51, 2:40-68, March-April 2008.

[69] Galzyev S. Yu. And G.G. Fetisov, “On the strategy of sustainable development of Russia’s economy” in Economic and Social Changes, n° 25 (1/2013), pp. 18-28; p. 21.

Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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