Journal of Financial Risk Management
2013. Vol.2, No.4, 77-83
Published Online December 2013 in SciRes (http://www.scirp.org/journal/jfrm) http:// dx.doi.org/10.423 6/jfrm.20 13.24013
Open Acces s
Excessive Base Money and Global Financial Crisis in Relati on to
the Essence of the So-Called “Abenomics”
International Center for Chinese Studies, Aichi University, Nagoya, Japan
Received August 9th, 20 13; rev is e d Septem ber 9th, 2013; accepted September 16th, 2013
Copyright © 2 013 Goro Takahashi. This is an open access article distributed under the Creative Commons At-
tribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the
original work is properly cited.
After the fi nanci al cri sis of 20 08, we ar e fac ing poss ibil ity of a gl obal fi nanc ial cr isis f urther . Most of the
fina ncia l crises have occ urr ed in situa tions when there is so much money in the financial market, but they
have not of t en occ ur red i n ca ses when the mar k et does not have enou g h mone y. T his thought , however, is
not general common sense in the financial academic field. Based on general understanding, the cause of
financial crisis is the lack of money with the rise of interest rates in the financial market. If the lack of
money is the reason for financial crisis, then we have never met with any financial crisis, because most
leading countries have much money in the financial market nowadays. According t o theory of Econo mics,
government deficit plus current account surplus means surplus of savings in the private sector of the
country. Currently, most countries with big-scale economy have big deficits in their national accounts.
But t here is enough mone y in the b usi ness s ector . I foc us on t his a spect and then a nal yze the b as e mone y
policy of the central bank of some countries, and analyze its effect or the meaning of excessive base
money in the financial market. As a general economic rule, the excess of money in a financial market
caus es a low int er est rate. On t he other ha nd, go ver nme nts a re fac ed wi th l ess money. If en ou gh mone y in
the mone y mark et f lows t o the tr eas ury acc ount, the go vernment gets nat ional fisca l bala nce. But it is not
easy for most governments to create the balance. The reason behind this is the failure of a national eco-
nomic a nd fis cal polic y, i ncluding t ax p olicy. Man y countr ies and c ommuniti es are fa cing prob lems wit h
the fl ow of mone y from the p rivate s ector to the gover nment. Thi s pr oblem is one of the bigges t inter na-
tional issues which should be solved immediately (Taylor, 2009). Of course, we cannot neglect the fact
that there are c ountries ha ving l ittle mone y e ven t heir pri vate sector like Greece, Italy, Sp ain, and s o on.
Econo mic growth i s the onl y measur e to solve t he financ ial pr oblem in these c ountri es. I do not c onsider
these countries in this paper. The financial markets that I focus on in this paper are the US, the EURO
Area, China and Japan. Many experts and economic politician worldwide consider “Abenomics” note-
worthy. It aims at increasing base money in the financial market of Japan. The biggest purpose of this
poli c y is f or b r eak ing a wa y fr om def l a ti on. Ja pa nese P r i me Minister, Abe, a l s o expec t s deval ua ti on of th e
Yen, and increase in Japanese export. Later in this paper, we will see that the amount of Japanese base
money had been decreased by the Central Bank of Japan before the global financial crisis of 2 007. The
hypothes is is t hat the caus e of a financia l crisis in recent year s is in the excess ive financ ial res ources in a
fina nc ial mar k et. Thi s pap er att empts to el uci date the rel at ion b et ween the t r end of gl oba l bas e money and
the financial crisis.
Key words: Financial Crisis; Abenomics; Excessive Mone y; Base Money; Money Stoc k
After the financial crisis of 2008, we are facing possibility of
a global financial crisis further. Most of the financial crises
have occurred in situations when there is so much money in the
financial market, but they have not often occurred in cases
when the market has not enough money. This thought, however,
is not general common sense in the financial academic field.
Based on general understanding, the cause of financial crisis is
the lack o f money with the rise of interest rates in the financial
A finance crisis happens for various reasons. This paper ob-
serves so far the increase in a great quantity of base moneys
seldom studied by the researcher. In four countries taken up in
this paper, the base money amounts to 1/8 - 1/3 to GDP. Ac-
cordi ng to experiential data, although ther e are some differenc-
es in each country, it in ordinary times shows that it is 1/18 -
I focus on this aspect and then analyze the base money policy
of the central bank of some countries, and analyze its effect or
the meaning of excessi ve base money in the financial market.
As a general economic rule, the excess of money in a finan-
cial market causes a low interest rate. On the other hand, gov-
ernments ar e faced with less money. This problem is one of the
biggest international issues which should be solved immediate-
ly (Taylor, 2009).
Many experts and economic politician worldwide consider
“Abeno mics” noteworthy. It aims at increasing base money in
Open Acces s
the financial market of Jap an. Japanese Prime minister Abe also
expects dev alu ati on o f the Yen , an d in crease in Jap anes e expo rt.
Later in this paper, we will see that the amount of Japanese
base money had been decreased by the Central Bank of Japan
before the global finan cial crisis of 2007.
This paper proved in consideration of the finance crisis in
2007 to 2008, a great quantity of increase in base money was
deeply connected with the finance crisis. In order to avoid a
finance crisis beforehand, it is necessary to research about a
reasonable quantity of base money.
Recently, the world economy has been rocked by crises.
Crises are categorized into many types: economic crisis, finan-
cial crisis, monetary crisis, stock crisis, foreign currency crisis,
business crisis and so on. Economic crisis embraces financial
crisis, monetar y crisis and oth er crises. The definition of finan-
cial crisis is not so rigid. It is defined generally as the situation
in which the value of financial institutions or assets drops ra-
pidly. A financial crisis is often associated with a panic or a run
on the banks, in which investors sell off assets or withdraw
money from savings accounts with the expectation that the
value of those assets will drop if they remain at a financial in-
stitution. If a financial situation like this continues, it will cause
an econo mic crisis (Christianoa et al ., 2004; Sau nd er s, A. et al.,
Financial crisis is currently the most serious problem in the
world with regard to the economy (Jean-Philippe et al., 2000).
The so called Pound crisis of 1992, Dollar crises in the 70’s and
80’s, also financial crises in the 60’s, 70’s and 80’s provoked
by the Dollar crisis, “Black Monday” in 1987, the bursting of
the bubble economy of Japan in the 90’s, Asian financial crisis
in 1997, US sub-prime financial Crisis in 2007, “Lehman
Shock” in 2008 and the financial crisis of European countries
are crises which seem to co ntinue up to the present. This p aper
focuses on a particular financial crisis among various kinds of
According to theory of Economics, government deficit plus
current account surplus means surplus of savings in the private
sector of the country. Currently, most countries with big-scale
economy have big deficits in their national accounts. But there
is enough money in the business sector. If the lack of money is
the reaso n for fin ancial cri sis, th en we hav e never met with an y
financial crisis, because most leading countries have much
money in the financial market in nowadays. If enough money in
the money market flows to the treasury account, the govern-
ment gets national fiscal balance. But it is not easy for most
governments to create the balance. Many countries and com-
munities are facing problems with the flow of money from the
private sector to th e government.
Cause of Financial Crisis
Hyman P. Minsky’s hypothesis explains the reason behind a
“The first theorem of the financial instability hypothesis is
that the economy has financing regimes and financing regimes
in which it is the second theorem of the financial instability is
that over periods of prolonged prosperity, the eco nomy transit s
from financial relations that make for a stable system to finan-
cial relations that make for an unstable system” (Minsky, 1992).
Minsky’s theories emphasize the macroeconomic dangers of
speculative bubbles in asset prices which were not incorporated
into the central bank policy. However, in the wake of the finan-
cial crises of 2007-2010, there was an increased interest in the
policy implications of his theories. Some central bankers had
begun to support Minsky’s theories since that time.
“Suffice it to say that, with the financial world in turmoil,
Minsky ’s work has become required reading. It is getting the
recognition it richly deserves. The dramatic events of the past
year and a half are a classic case of the kind of systemic
breakdown that he—and relatively few others—envision ed”
Minsky postulates that a key factor to provoke a crisis is the
accumulation of debt by the non-government sector. He said
that three types of borrowers contribute to the accumulation of
insolvent debt: 1) “hedge borrowers”; 2) “speculative borrow-
ers”; and 3) “Ponzi borrowers”. Ponzi means one kind of pyra-
According to Minsky, the financial crises are provoked by
highly developed capitalism of after World War II. Moreover,
there are five stages of a credit cycle in highly developed
economies. He also says that there is an essential instability in a
market economy, which means that financial instability is ne-
cessary. H e describes the instability stages as fo llows:
1) When an economic condition is good, investors take risk.
2) Risk will continue to increase.
3) When taking the risk exceeds a certain level, it becomes
impossible to obtain the benefits associated to the risks.
4) A risk expands with some economic shocks.
5) The p anicked investors sell off their asset s .
6) Assets price will slump.
7) Investors fall into a negative net worth which goes to
8) The banks lend to investors who go bankrupt.
9) The cen tral ban k r elieves banks (“Minsky Momentum”).
10) Return to stage a) (M i ns k y, 1992).
He, ho wever, di d exp lain thi s claim; he was not able to prove
his great hypothesis. The reason is not so complicated. Minsky
did not find out the fact that financial crisis is provoked by the
flood of money. Most financial crises do not occur in the stage
where there is shortage of money. It is not only Minsky who
made a mistake but also most financial research ers.
One typical researcher who made similar mistake was Pro-
fessor Milton Friedman. During the 1960s, he promoted an
alternative macroeconomic policy known as “mon et ar i sm”. He
argued t hat the Phillips curve was not stable and predicted what
would come to be known as stagflation. Though opposed to the
existence of the Federal Reserve, Friedman argued that, given
that it does exist, a steady, small expansion of the money
supply was the only wise policy (Brian, 1995).
Many researchers have criticized Minsky’s assertion in part.
They say that the current financial market turmoil has been
ignited by the collapse of the sub-prime mortgage market. And
they believe it has been brought by the ideas of Hyman Minsky.
Many commentators view that Minsky’s framework of thinking
accurately anticipated the current financial crisis. The heart of
Minsky’s framework is that capitalism is inherently un-stable
and has self-destructive tendencies. An important mechanism
for this destructive tendency is the accumulation of debt. Con-
trary to Minsky, an analysis shows that the existence of the
central b an k makes the cap it alism unstable. This is the only one
factor which is responsible for the current financial instability
Open Acces s
I agree with some parts of the criticism, “the heart of
Minsky ’s framework is that capitalism is inherently unstable
and has self-destructive tend enci es”. To add an other crit icism, I
believe that Minsky’s assertion has not been verified using ap-
propriate data. Nevertheless, his assertion has been supported
by many researchers (Wolfson, 2002; Wra y, 2009). P. Krugm a n,
who was critical of his view, also has a posture in evaluating
Minsky’s theory (Krugman, 2012). I agree with most of his
The contribution of Minsky’s assertion is that it has over-
coming the theory of circulation of the financial crises, and has
have cleared the circu lar movement of business fluctuation.
Every economist knows that depression is provoked as a re-
sult of business fluctuation. But most economists think that a
financial depression, for example the financial depression of
1927, was provoked as the result of business cycle depression.
Most economists agree with the idea that a financial crisis
has the ability to resolve the crisis by itself. I, however, disag-
ree to that. They assert that financial depression takes place as
the result of business circulation. Minsky rejected this claim.
To understand why, we must consider the origin of his thought.
I believe it originated from the criticism against an economic
theo r y whi ch Keynesian an d Monetarist s hare.
Minsky points out that Neoclassical Synthesis is a resul t of a
Keynesian and Monetarist fusion. In the process of this fusion,
the revolutionary discernment about the function of capitalism
and t he theory of Ke yn es were lo st. By Neoclas sical S ynthesis,
for example, Keynesian theories about the characteristic of
capital ist and banking system were disregarded.
He argues th at these portions which ar e the b ase of the theo-
ries which produce economic instability were disregarded by
Neoclassical Synthesis. And this instability is a factor reflecting
the essen tial att ribute of a capital istic econ omy which in creased
in importance in the middle of 1960s (Minsky, 1986). Because
of these arguments, many scholars agree with Minsky’s theo-
ries (Wr ay, 2011).
One of the theories supposes that the deregulation of finan-
cial service s can cause a cris is (Corn etta et al., 20 11). He re is a
typical opinion of a well-known economist. “Fundamentally I
see the crisis as the result of flawed regulation and perverse in-
centives in financial markets. Regulators brought into the ar-
guments of the regulated that financial institutions could safely
operate with a thinner capital cushion” (Eic he ngreen, 20 10).
This resear cher also th inks that the glo balization of finan cial
fiel d leads the financial market to crisis. “What about globali-
zation, which is what I was in fact asked to talk about? There
are two connections. The oblique connection is between globa-
lizat ion and the compet itive pressu re that encou raged excessi ve
risk taking. Financial institutions stretched for risk and gam-
bled for survival as their profit margins were squeezed by
growing competition” (Eichengreen, 2010).
In addition to deregulation, there is also a view that focuses
on the co llapse of mortgage d erivatives. In th is case, the finan-
cial crisis in the United States has been in mind. “Its causes
include: major changes in regulation, lax regulatory oversight,
a relaxation of normal standards of prudent lending and a pe-
riod of abnormally low interest rates. The default on a signifi-
cant fraction of subprime mortgages produced spillover effects
around the world via the securitized mortgage derivatives into
which these mortgages were bundled to the balance sheets of
investment banks, hedge funds and conduits (which are bank-
owned but off their balance sheets) which int ermedia te between
mortgage and other asset backed commercial paper and long-
term securities. The uncertainty about the value of the securi-
ties collateralized by these mortgages spread uncertainty about
the soundness of loans for leveraged buyouts” (Bordo, 2008).
There is another opinion. “The subprime mortgag e crisis that
started in 2007 was characterized by an unusually large frac-
tion of subprime mortgages originated in 2006 and 2007 be-
coming delinquent or in foreclosure only months later” (De-
myanyk & Hemert, 2009).
Money Has Become Globally Superfluous
All the assertions above explain that the reason of financial
crisis is indirect. On the contrary, my opinion as to why finan-
cial crisis happens is more direct: the reason is the global in-
crease in the amount of base money. This paper, however, does
not adopt the stance of Monetarism. On the other hand, this
paper points out that control of money supply is very important.
The policy of money supply is that an operation on interest rate
and quantitative management of money in a financial market.
Monetarists believe that the purpose of money control is the
same as controlling inflation and adjusting social demands of
goods and services. But by controlling money supply, we have
noticed that it is impossible to control the market economy
The only function of money control is to adjust the quantity
of money in the market. What they think is that financial de-
pression happens due to the lack or shortage of money in the
financial market. Their policy depends strongly on an intere-
strate policy. But we know that the adequacy of money in the
market is decided by all fields of economic activities, not only
financial activities. And we know that a recession would hap-
pen even in a situation where there is flood of money in the
financial market. It has been shown that financial crisis is not
provoked by the shortage of money, but rather it is provoked by
the excess of money in the global and domestic financial mar-
In this paper the relation of the flood of money and financial
crisis is pr e s e nte d below.
On a worldwide scale, the base money is continuing to in-
crease. Although the increase in base money is a result of the
growth of the economy, it is the actual condition in which it ex-
ceeds the scale which the economy needs. We can know from
Figures 1-4 for the base money of standard. The base money of
standard should be more than 8 - 10 regardin g the index of
“GDP/base money” in the case of 4 major countries. But since
2008, the index of most the countries became less than 8 times.
This means that many countr ies fell into the state of excess base
This is b ecause t he monet ar y finan cial po licy has cen tered on
a money-supply control and an interest-rate polici es. These t wo
policies aim at controlling inflation and deflation. However, the
monetary financial policy did not always function ideally. The
two monetary financial policies making money in the money
market are effective, but controlling the base money which al-
read y appeared in the market after printing is difficult.
In this way, the increase in the amount of base money was
enhanced, and it means that the control of a monetary financial
policy began to be ineffective. Furthermore, this shows the
Open Acces s
Change of Base Mon ey, GDP/Base Money: USA. Source: IMF, FRB.
Change of Base Money, GDP/Base Money: Euro Area. Source: IMF,
Cen tral B ank of E U .
Change of Base Money, GDP/Base Money: China. Source: IMF,
People’s Bank of China.
relevance of base money and money supply (money stock)
faded gradually. The reaso n is the increase i n cashless p ayment
dealin gs and th e degree of requ ir ed cash contr acted . Thi s means
the money supply cannot reflect the actual condition of a finan-
cial transaction. Only the base money can serve as backing for
these d ealings.
Figure 5 shows transition of private savings rate to GDP of
major nations in 2000 onwards. Even the US with the lowest
savings ratio maintains 15%, and Japan and Germany show the
highest level exceeding 25%. Although the height of a private
savings rate becomes a factor which affects governmental fi-
nancial circumstances, there is also a merit that government
bonds can offer with a low interest rate. But when this happens,
interest rates fall in the private-financing market. In every
country, the savings ratio fell greatly in 2008 because of the
“Riemann shock”. The rise began again after that. The funda-
mental reason is linked to the quantity of excess base money in
the financial market.
Figure 6 shows transition of the long-term interest rate of
major economies. The long interest rate of most countries was
lower up to the time of “Riemann shock”. Ho wever, the i nt erest
rate of Spain and Italy jumped up greatly after Riemann sho ck.
The superfluous money of the private sector in this two coun-
Change of Base Money, GDP/Base Money: Japan. Source: IMF, Cen-
tral Bank of Japan.
Gross national sa vings (%). Source: IMF.
Change of long interest rate (%). Source: W o r l d Bank.
B ase Money of US
GD P/B.M :RB.M:L
B ase Mone y of EURO Ar ea
GD P/B.M :RB.M:L
B ase Mone y of China
GD P/B.M :RB.M:L
Base Money of Japan
B.M:L GD P/B.M :R
Gr oss national sa vings
2007 2008 20092010 20112012 Aug
Long inte rest ra te( %)
Open Acces s
tries disappeared, and so was the money from the Government
authorities. Except for these two countries, a long-term interest
rate should continue to fall. It is possible to say that this is be-
cause the quantity of base money is so much more the quantity
which the market requires.
Figure 7 shows transition of real interest rate. The trend of
the real in terest rate di ffers from the case of a savin gs ratio an d
a long-term int erest rate. In ever y country, th e real interest rat e
is fallin g. I n the case of China and I taly, the range of fluctuation
is larger. The real interest rate of China fell sharply in 1994.
This reason is because the RMB was devaluated to $1 ≒
RMB 8 from $1 ≒ RMB 5. The devaluation of the Lira of
Italy and Peseta of Spain was performed at this time. The real
interest rate of the Lira increased in 1992 because it seemed
that t he Lira left th e Exchan ge Rate Mech anism (ERM) and the
breakaway from the Europe monetary crisis was completed.
Except for t hese exceptio ns, the real int erest rate of world is in
a downward trend, which was about 3% to 5% in general by
2010. The downward trend of a real interest rate means that a
superfluous state of money exists globally.
Excess of Base Mone y and Financial Crisis
Figures 1-4 show that the amount of base money of the US,
the EURO Ar ea , China and Japan is increasing.
The base money of the US (Figure 1) increased steadily by
2008 , and then i ncreased rapidly. The increase was extreme; the
quantity in 2012 increased 2.5 times that in 2008. The base
money of the EURO Area (Figure 2) has shown a bigger in-
crease than the US till 2008. However, the increase was les-
sened after 2008. Compared with 2008, it became 1.8 times that
The base money of China (Figure 3) has tendencies to in-
crease, and has clear fixed periodicity. It increases suddenly in
January and February every year, decreases after that, and is
stabilized for several months. The increasing trend of its base
money is clear too. The in crease in the base money of China in
2008 was slightly large.
However, usual periodicity has changed and the increase in
base money became small.
The movement of the increase in base money of Japan (Fig-
ure 4) is qu ite typical. It increased from 200 0 till the beginning
of 2006, and reduced quickly in June 2006 onwards. Then, a
stable increase was seen followed by a great increase in 2011
Earlier i n the paper , it was said that t he so called Aben omics
Cha nge of Real interes t rate (%). S ourc e: World Bank.
has been noteworthy to many experts and economic politicians
worldwide. This policy aims at increasing the base money in
the financial market of Japan, and its biggest purpose is to help
the country break away from deflation. One interesting event
that happened was the amount of the Japanese base money had
been decreased by Central Bank of Japan before the global
financial crisis of 2007.
When Japan was in the economic recession, two monetary
tightening ideologists took office as t he presid ent of the Cent ral
Bank of Japan.
They are Mr. Toshihiko Fukui and Mr. Masaaki Shirakawa.
These two presidents of the Central Bank ran a tight monetary
policy. As a result, the amount of Japanese base money de-
creased for man y years. It is, however, important to note that at
that tim e t he Cent ra l Ba nk ha d t o run t he loos e monetary poli cy.
The central banks of many countries ran the loose monetary
policy, and increased their base money. The new Japanese
prime minister noticed that and would like Japan to also in-
crease its base money. My evaluation of “Abenomics” is de-
If devaluation of the yen proceeds, commodity and service
prices will increase. But the income of the people and demand
will not increase. Therefore, the economy will likely not im-
prove. Rather, in Japan, this policy is supposed to increase the
risk of financial crisis.
There are two main policies to avoid the impending crisis.
The corporate tax rate of companies is as high as 35.64%; it is
necessary to lower it to 20%. Moreover, reducing the income
tax of the young generation is required. If we run this policy,
corporate management will improve and business investment
will recover. Consequently, domestic demand will increase
By the wa y, the large financial cri ses of the 20 00s are th e fi-
nancial crises in 2007, 2008, and the subsequent Europe debt
crisis (Reinhart et al., 2 008). The reaction of the base money of
each country to these financial crises was not the same. First,
the change in the amount of base money in the US and the
EURO Area was mostly similar to what happened in the finan-
cial crisis in 2008. That is, the base money increased greatly.
However, Ch ina and Japan were pecu liar. That is , there was no
big change in the movement of their base money. Why does
such a difference aris e?
1) The financial crises in the US and the EURO Area were so
serious that the base money was wiped away. However, the
cause of the financial crisis was not the absolute shortage of
money, but the misdi s tr ibution of money.
2) In China and Japan, the financing surplus of the private
sector was l ar ge, which sto p ped the aggr avatio n of th e finan cial
If so, then when base money continues to increase more than
the amount needed in the market, why does a financial crisis
happen? It happens because the rate of interest tends to fall.
This is b ecause fu nd managers make riskier in vest ment , an d the
probability of risk goes up abruptly. As a consequence, specul-
ative tran s actions are generalized in global range.
Money supply mult ipli es base money b y the monetary veloc-
ity of circulation, and is adjusted automatically by the velocity
of circulation of the money which the state of economic condi-
tions determines. The quantity of the base money in a financial
market is adjusted by the central bank and interest rate in the
market raised in order to absorb base money. The operation
which must lower the interest rate is required. It cannot be in-
Real interest rate (%)
Open Acces s
dependent of the influence of the financial market. That is, once
base money comes out to the financial market, it has the fate
which can never be erased. Unlike money supply, the substan-
tial reconciliation is impossible or very impossible for a while.
If base mon ey in creases, it cannot be denied that the possibilit y
of a financial crisis increases.
The financial crisis and the Europe debt crisis in 2008 are the
occurrences that show the possibility. Figure 8 shows that the
financial crisis which occurred was the result of the continuous
increase in base money which raised the bad loan ratio of the
bank rapidly and seriously influenced the management of banks.
Figure 9 shows that Ted Spread went up rapidly. The TED
spread is the difference between the interest rates of interbank
loans and short-term U.S. Treasury Bond (“T-bills”). TED is an
abbreviation of T-Bill and Eurodollar, the ticker symbol for the
Eurodollar future contract (Chatrath et al., 19 99).
Consumption of GDP before Its Realization
Excess o f base mon ey leads to o ne more prob lem. The capi-
tal development in a capitalist economy is accompanied by the
exchange of present money for future money (Allen et al., 2010).
Figure 10 shows that if the quantity of actual base money
Bank nonperforming loans to total gross loans (%).
Source: World Bank.
Change of Ted Spread for 20 years. Source:
Image of preempted consumption of GDP of future in current year.
which exceeds the quantity of theoretical base money, GDP of
n2 period is consumed in advance in n1 period. The quantity of
theoretical base money is recognized at least 8 - 10 regarding
the index of “GDP/base money”. The GDP quantity consumed
in ad vance depends on the spread between the quantity of theo-
retical base money and the quan tity of actual b ase money.
When the quantity of base money exceeds the proper amount,
since prior consumption of GDP takes place, it is necessary to
double the amount of GDP produced in the following year.
When a required quantity of GDP cannot be secured, inflation
may happen. On the other hand, if GDP runs short, a depression
of busi ness will come and a finan cial risk will increase furth er.
A financi al crisis happens based on such cir cumstances.
Therefore, the present big global political project is how to
adjust superfluous base money to a proper quantity level. The
ost important is to make international standards in managing
In the modern global financial world the uncontrolled action
of increasing base money is universal. The so called Abenomics
which Japanese Prime Minister Abe is saying is one of the typ-
ical examples. The policy which increases “money stock” by
increasi ng “base money” has been adopted by many countries
so far. This policy is universal as a financial policy in main
The purpose of this policy is to try to overcome the limit of
interes t rate cont rol policy. Fur thermore, t he base money po licy
is becoming a very important method to avoid intervening di-
rectly in foreign exchange market. As a result, every country
became interested in base money i ss ue as an impo r tant pol icy.
As I have mentioned above, base money of abnormal quan-
tity has increased in main countries. Because of this, we may
face a very dangerous and serious financial cris is.
Therefore, the most important subject in the current world
economy is how to have a suitable quantity of base money in
every country and in the world.
Ta ylo r, J. B. (2009 ). The financial crisis and the policy responses: An
empirical analysis of what went wrong. Working Paper 14631. Na-
B ank nonpe rforming loansto tota l gross loa ns (%)
c hange of Ted S pre ad( %)
a: t h eoretical base mon ey
n2 n3 n4
b: actual base mo ney
n2p: preempted consumption of GDP of n2 in n1 t ime period
Open Acces s
tional Bureau of Economi c Re search, 1050.
Christianoa, L. J. Gu s tc , C., & Roldosd, J. (2004). Monetary policy in a
financial cris is. Journ al of Economic T he o ry , 1 1 9, 64-103.
Saunders, A., & Allen. L. (2010). Credit risk management in and out of
the financ ia l cr isis. Hoboken, NJ: John Wiley & Sons, Inc.
Jean-Philippe, B., & Marc, P. (2000). Theory of financial risks: From
statistical physics to risk management (2nd ed.). Cambridge: Cam-
bridge Un iversity Pres s.
Minsky, H. P. (1992). The financial instability hypothesis. The J erome
Levy Economics Inst itute of Ba r d College, Working Paper, No.74.
Yellen, J. L. (2009). A Minsky me l t down. Presentation to the 18th
Annual Hyman P. Minsky Conference on the State of the US and
World Economies—“Meeting the challenges of the financial crisis”.
New York: The Levy Economic s Inst itute of Ba rd College.
Brian, D. (1995). Best of both worlds.
http://reason.com/archives/1995/06/01/best-of-both-wor l d s
Shostak, F. (2007).The Hyman Minsky theory does not explain the
current fi nan cial crisis.
http://www.24hgold.com /english/contributor.aspx?cont ributor=Fra nk
Wra y, L. R. (2009). Money manager capitalism and the global fin an ci al
crisis. The Levy Economics Institute of Bard College, Working Pa-
per, No. 578.
Wra y, L. R. (2011). Minsky crisis. The Levy Economics Institute of
Bard College, Working Paper, No. 659.
Wol fs on , M. H. (2002). Minsky’s theory of financial crisis in a global
context. Journal of Economic Issues, 36, 393.
Kru g m a n , P. (2012). Minsky and Methodology (Wonkish). The New
Minsky, H. P. (1986). Stabilizing an unstable economy. New Haven,
CT: Yale University Press.
Cornetta, M. M., McNuttb, J. J., Strahanc, P. E., & Tehr aniand, H.
(2011). Liquidity risk management and credit supply in the financial
crisis. Jo ur n a l of Financ i al Economics, 101, 297-312.
http://dx.d oi.org/10.1016/j. jfineco.2 011.03.001
Eichengreen, B. (2010). Globalization and the crisis. CESIFO Forum.
Bordo, M. D. (2008). An historical perspective on the crisis of 2007 -
2008. NBER Work ing Paper Series, Working Paper, 14569.
Demya nyk , Y., & Van Hemert, O. (2009 ). Understanding the subprime
mortgage crisi s .
http://www.fdic.gov/bank/ana lytical/ cfr/2008/mar/CFR_ SS _2008_D
Reinhart, C. M., & Rogoff, K. S. (2008). Is the 2007 US subprime
financial crisis so different? An international historical comparison.
National Bureau of E conomi c Resea rch, Working Paper, No. 13761.
Chatrath, A., Chaudhry, M., & David, R. C. (1999). Price discovery in
strategically linked markets: The TED spread and its constituents.
The Jour nal of Der ivatives, 6, 77-87.